Dramatic irony: a situation where the significance of what is going on is clear to the audience, but is lost on the character(s) themselves. In other words the characters believe one thing is going on, but the audience is in possession of knowledge that makes the way the characters think of it completely wrong.
My favorite piece of dramatic irony is in Hamlet, Act 3 Scene 4, where Hamlet wants to kill Claudius but can't because Claudius was praying and he will be in a state of grace and heaven bound if Hamlet kills him. The audience knows that Claudius is not really praying. He is too filled with guilt.