"Gray hat" means "we know we're cheating, but we haven't been caught yet". It usually involves things like content farming (autoblogging) with content from more than one site, hiding paid links in a series of "shell networks" (similar to "shell corporations" used to hide taxation and legal liabilities), paywalling content that search engines can index, bait-and-switch pages using clever techniques that get around Google's content-swap autodetect, and so on. It's exactly the same as "black hat", except that you might be able to get away with it for a couple of weeks longer before you get sent back to page 10,820 on the results list (or blocked altogether). And once Google has given you a spanking, it takes a long, long time and a lot of work to get back up to where you should have been in the first place.
You want to do SEO? Start with good content. Make that content accessible and discoverable with good design (that includes the design of the HTML). Use sparse but on-message metadata (keywords and description -- they matter, but ONLY if you do it right). Keep the content fresh. Market (including so-called "SMO") without spamming. If you have something people want AND you work hard at getting that message out there, you get organic SEO, which is the only kind with staying power.