A fakir is a holy man.
A fakir is a holy man who is actually part of the Hindu or Muslim religion. They were mystics who supposedly had magical powers, and sometimes exhibited them by doing extraordinary deeds like firewalking. This story is fictional, and in this story, the fakir puts a sort of curse on a monkey’s paw so that it can grant a person wishes.
The sergeant-major who brings the monkey's paw explains its history and how he got it from the fakir.
"It had a spell put on it by an old fakir," said the sergeant-major, "a very holy man. He wanted to show that fate ruled people's lives, and that those who interfered with it did so to their sorrow. He put a spell on it so that three separate men could each have three wishes from it."
This is a very old story of course, the tale of getting three wishes. In this case, there is a twist. An old friend—or acquaintance at least—sergeant-major Morris shows up on a spooky night with this trinket and says that it has these powers, but that they should leave it alone.
When the Whites inquire about the paw, the sergeant-major answers that the paw is real, but it is dangerous.
"The first man had his three wishes, yes," was the reply. "I don't know what the first two were, but the third was for death. That's how I got the paw."
The moral of the story is that you should listen when someone brings you a mysterious object, warms you about it, and throws it into the fire. This means you should not wish upon it! Leave it alone! The Whites should have listened. If they had, it would have avoided them a lot of hardship. However, easy riches are hard to pass up.