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A beta test refers to the distribution of pre-release game software to a select group of people so that they can test the game in their own homes. The beta version of a game is as close to perfect as the company can make it, but any bugs, glitches or other issues discovered in beta testing will usually be addressed before the game's official release.
Beta testing usually depends on volunteers rather than on paid play testers. By the beta-testing stage, all major bugs should have been worked out in earlier, in-house testing. By the time the beta-testing stage is reached, it is usually too late to make any major changes to the game mechanics, level designs and so on, so any fixes usually take the form of a patch.