Yes, cosplay is where either you dress up as a show character (it doesn't have to be anime) or you wear a costume for some purpose.
Anime: You dress up as your favorite anime character
Sci-Fi: You dress up as a Jedi or a Klingon from the Star Wars and Star Trek series
Genre: You dress up as a nurse/fireman for some fun
As for how to pronounce "cosplay"... Since it is simply the running together of "cos"tume and "play", you simply pronounce it as such. Thus, "cos" (sounds like "cause") + "play".