A "hammer on" refers to the technique of sounding a note without actually picking the string with the pick. The sound is produced by striking the string with one of the left hand fingers. To play a hammer on, first hold an Am chord:
Am
Keeping the first and third fingers in position, lift the second finger off the fourth string. Pick the open fourth string, then bring the second finger down firmly and quickly to its position on the second fret, (an E note) without picking the string again. This action should produce the E note quite clearly. After this hammer on has been completed strum the Am chord.
In music notation, what you have just played is written as in Example 54: The hammer on effect is indicated by the curved line, and the small "H" between the two notes in question. Remember that the second note (E) is not picked; the sound is produced entirely by the second finger "hammering" on to the string.
The hammer on is most effective when used in conjunction with strumming and bass note picking. You must be very careful with the timing of the hammer on. Both the D and E notes are eighth notes and each should have equal time value when played (regardless of the hammer on technique).
The hammer on is an extremely popular technique which can be played with virtually any chord shape. It can also be played with any finger holding a note of the chord. For Am you could hammer on with the first or third fingers as such:
The combinations of hammer on, bass note picking and bass note runs are virtually endless, so you should experiment as much as possible.