The Collaborative International Dictionary of English v.0.48:

Handicap \Hand"i*cap\, v. t. [imp. & p. p. Handicapped
   (-k[a^]pt); p. pr. & vb. n. Handicapping.]
   To encumber with a handicap in any contest; hence, in
   general, to place at disadvantage; as, the candidate was
   heavily handicapped.
   [1913 Webster]

The Collaborative International Dictionary of English v.0.48:

handicap \hand"i*cap\ (h[a^]n"d[i^]*k[a^]p), n. [From hand in
   cap; -- perh. in reference to an old mode of settling a
   bargain by taking pieces of money from a cap.]
   1. An allowance of a certain amount of time or distance in
      starting, granted in a race to the competitor possessing
      inferior advantages; or an additional weight or other
      hindrance imposed upon the one possessing superior
      advantages, in order to equalize, as much as possible, the
      chances of success; as, the handicap was five seconds, or
      ten pounds, and the like.
      [1913 Webster]

   2. A race, for horses or men, or any contest of agility,
      strength, or skill, in which there is an allowance of
      time, distance, weight, or other advantage, to equalize
      the chances of the competitors.
      [1913 Webster]

   3. An old game at cards. [Obs.] --Pepys.
      [1913 Webster]

   4. a physical or mental disability of the body which makes
      normal human activities more difficult or impossible; as,
      his deformed leg was a major handicap in walking.
      [PJC]

   5. any disadvantage that makes an activity more difficult or
      impossible; as, insufficient capital was a big handicap in
      competing against Microsoft.
      [PJC]

WordNet (r) 3.0 (2006):

handicap
    n 1: the condition of being unable to perform as a consequence
         of physical or mental unfitness; "reading disability";
         "hearing impairment" [syn: disability, disablement,
         handicap, impairment]
    2: advantage given to a competitor to equalize chances of
       winning
    3: something immaterial that interferes with or delays action or
       progress [syn: hindrance, hinderance, deterrent,
       impediment, balk, baulk, check, handicap]
    v 1: injure permanently; "He was disabled in a car accident"
         [syn: disable, invalid, incapacitate, handicap]
    2: attempt to forecast the winner (especially in a horse race)
       and assign odds for or against a contestant
    3: put at a disadvantage; "The brace I have to wear is hindering
       my movements" [syn: handicap, hinder, hamper]