"Add" and "drop" here refer to the capability of the device to add one or more new wavelength channels to an existing multi-wavelength WDM signal, and/or to drop (remove) one or more channels, passing those signals to another network path.
An OADM may be considered to be a specific type of optical cross-connect.
A traditional OADM consists of three stages: an optical demultiplexer, an optical multiplexer, and between them a method of reconfiguring the paths between the demultiplexer, the multiplexer and a set of ports for adding and dropping signals.
The demultiplexer separates wavelengths in an input fiber onto ports.
The reconfiguration can be achieved by a fiber patch panel or by optical switches which direct the wavelengths to the multiplexer or to drop ports.