Plain English Meaning
A pilot examiner approved by the FAA to give checkrides. They are not an FAA employee, but the FAA has officially appointed them to test pilots and issue certificates.
Full Definition
A private individual appointed and authorized by the FAA to conduct practical tests (checkrides) for the issuance of pilot certificates and ratings on the FAA's behalf. A DPE acts under the authority delegated by the FAA Administrator and applies the same standards an FAA inspector would apply, but operates as a non-government examiner who typically charges a fee for the test.
Context Anchor
You encounter a DPE during the practical test process, after your instructor has prepared you and endorsed you to take the test.
Derivation
Designated' comes from the Latin designare, meaning 'to mark out' or 'to appoint.' The term reflects that the examiner has been formally appointed by the FAA to act on its behalf — they are not just any pilot, they have been specifically named to this role.