The Sanskrit word Karmamudra is a technical term utilized in Tibetan Buddhism, specifically in Tantra. The term is derived from karman (act) and mudra (seal), so can be translated as "action seal" or "activity seal." It refers to a secret level of Tantra in which specially prepared initiates - one male, one female - join sexually in order to harness the power of sex for spiritual development. Through the "activity" of sexual energy, the initiate can "seal" their consciousness in the clear light (bodhichitta / Chenresig / Christ). Karmamudra refers both to this type of practice and sometimes to the woman who practices it.
Karmamudra practice is known in all major Tibetan schools, especially in the Kalachakra Tantra. The prerequisites for this teaching include initiation into the tradition, proven comprehension of the Sutrayana and Mahayana teachings, and the ability to restrain the sexual energy. That is, emission of the sexual energy (orgasm) is not allowed.
The bliss of not expelling the seed [through orgasm] destroys the fear of death and is the fourth face of the guru, or the gnosis vajra. This is a confirmation of the yoga meditations. - Vimalaprabha, Stainless Light, The Great Commentary, by Pundarika
By mudra consort yoga, instinctual emission is transformed into instinctual nonemission, like mercury and fire. This is spoken of by the Buddha in verse 224 of the Methods of Accomplishment chapter of the king of tantras:
"Fire is enemy of mercury;
without fire mercury is never bound.
Unbound it will not create gold;
no gold is of no use to man.
Similarly, not in union with a consort,
the yogi's mind is forever unbound.
Unbound, his body is not penetrated,
a body not penetrated does not grant innate bliss [the bliss of withholding emission]." - Vimalaprabha, Stainless Light, The Great Commentary, by Pundarika
The purpose of Karmamudra is to generate a special state of consciousness that provides insight into the nature of reality. By activating and directing the most powerful energies within, the consciousness is supercharged with blissful forces that open doors to comprehension. Furthermore, these energies facilitate the creation of the superior bodies or vehicles used by the consciousness to reach complete enlightenment.
To increase this innate bliss of the conquerer,
first rely upon an activity [karma] mudra consort;
then create the sun form, with body, face,
legs, crown, all limbs complete... - Vimalaprabha, Stainless Light, The Great Commentary, by Pundarika
The practice itself is described here, and uses the Tantric meaning of the Sanskrit word bodhichitta: sexual energy.
With the pride of a vajra holder (that is, with a sense of divinity and respect, not animal lust),
the vajra with the lotus enters the lotus (male and female unite).
With the lingam (male organ) placed into the bhaga (female organ),
the yogi performs hum phat (the secret mantras);
the bodhichitta (sexual energy) is not emitted. - Vimalaprabha, Stainless Light, The Great Commentary, by Pundarika