Inclination in general is the angle between a reference plane and another plane or axis of direction. The axial tilt is expressed as the angle made by the planet's axis and a line drawn through the planet's center perpendicular to the orbital plane.
In the solar system, the inclination (i in figure 1, below) of the orbit of a planet is defined as the angle between the plane of the orbit of the planet and the ecliptic —which is the plane containing Earth's orbital path. It could be measured with respect to another plane, such as the Sun's equator or even Jupiter's orbital plane, but the ecliptic is more practical for Earth-bound observers. Most planetary orbits in our solar system have relatively small inclinations, both in relation to each other and to the Sun's equator. There are notable exceptions in the dwarf planets Pluto and Eris, which have inclinations to the ecliptic of 17 degrees and 44 degrees respectively, and the large asteroid Pallas, which is inclined at 34 degrees. Many of the currently known extrasolar planets are in multiple systems, and sometimes have high inclinations.
The inclination of orbits of natural or artificial satellites is measured relative to the equatorial plane of the body they orbit if they do so close enough. The equatorial plane is the plane perpendicular to the axis of rotation of the central body.
For objects farther away from the central body, another reference plane is often used: the Laplace plane. As one moves away from the primary, the Laplace plane starts off in its equatorial plane and then gradually tilts away from that plane until it merges with the primary's orbital plane at great distances.
For objects where the primary's axis of rotation is unknown or poorly known, a satellite's inclination will be given with respect to the ecliptic, or sometimes (for slow-moving objects) with respect to the plane of the sky (see the definition given for binary stars, below).
For the Moon, measuring its inclination with respect to Earth's equatorial plane leads to a rapidly varying quantity and it makes more sense to measure it with respect to the ecliptic (i.e. the plane of the orbit that Earth and Moon track together around the Sun), a fairly constant quantity.