According to wikipedia:
Upcycling is the process of converting waste materials or useless products into new materials or products of better quality or a higher environmental value.
I heard the term for the first time on an episode of The Martha Stewart Show. The craft segment was about upcycling used gift bags or paper shopping bags by cutting them into strips and making bows. What a great idea!
To see the video go to MarthaStewart.com and search Upcycling Bows.