Usually when someone “hacks” in an online game, or in other words cheats, as the two terms are used interchangeably, they’re using an external program to give them an advantage. A common example in shooters is an aimbot. Some aimbots work by scanning you screen and looking for specific shapes and colors. Some secretly access game data that reports to the client what enemy player positions are, and so forth. Alternatively people often refer to disruptive glitches as “hacks”. GTA God Mode glitches are sometimes called “hacks”, but they’re just exploits based on existing glitches.

ACTUAL hacks do exist for some online games, and they make use of security flaws on the game’s server. A good example is GTA Online on PC. Hackers discovered a security flaw that allowed them to intercept the online server with their own custom code. These kinds of hacks are actually quite rare.