Literally taghut means anvone who exceeds his legitimate limits. In the Qur'anic terminology, however, it refers to the creature who exceeds the limits of his creatureliness and arrogates to himself godhead and lordship.
There are three stages of man's transgression and rebellion against God.
The first stage is that one acknowledges in principle that obedience to God is right, but disregards it in practice. This is fisq (transgression).
The second stage is that one not only disobeys but also rejects obedience in principle, and thus either refuses to become the subject of anyone at all or adopts someone other than God as the object of service and devotion. This is kufr (infidelity).
The third stage is that one not only rebels against one's Lord but also imposes one's own will (in disregard of the Will of God - Ed.) on God's world and God's creatures. Anyone who reaches such a point is termed taghut and no one can be a true believer in God unless the authority of such a taghut (evil one) is rejected.
By turning away from God, a man is subjected not to the tyranny of one, but to the tyranny of many tawaghit (evil ones). One of these is Satan, who throws up new temptations and allurements. Another potential taghut (transgressor) is man's own animal self, which seeks to subjugate him to his appetites and desires. There are many more taghut in the world outside oneself ; one's wife or husband and children, one's relatives, one's family and one's community, one's friends and acquaintances, one's social environment and one's people, one's leaders and guides, one's government and rulers are all potential taghut, each one of whom may seek to have his purposes served. Man remains subjected to these innumerable masters throughout his life, not knowing precisely whom he should please and whose displeasure he should avoid.
لا إِكْرَاهَ فِي الدِّينِ قَدْ تَبَيَّنَ الرُّشْدُ مِنَ الْغَيِّ فَمَنْ يَكْفُرْ بِالطَّاغُوتِ وَيُؤْمِنْ بِاللَّهِ فَقَدِ اسْتَمْسَكَ بِالْعُرْوَةِ الْوُثْقَى لا انْفِصَامَ لَهَا وَاللَّهُ سَمِيعٌ عَلِيمٌ