In the nuclear field, the word photon is often used interchangeably with the word gamma ray.  However, there are slight differences between the definitions of these words.  A gamma ray refers to a photon that was created within the nucleus of an atom, while an X-ray (also a photon) is a photon that was created from an excited election.  As a general rule of thumb, low energy photons are usually X-rays, while higher energy photons are gamma rays.

Photons interact in matter directly with the electrons.  

This first figure, below, shows the first type of interaction, which is the photo-electric effect. In this type of interaction, a photon is absorbed by an electron causing it to be in an excited state.  Due to the excess energy the election leaves the atom, creating an electron hole in its electron orbital.  This hole if filled by outer electrons, thus creating excess energy in the atom.  This excess energy is emitted as an X-ray.

 The second type of interaction, shown in the figure below, is called Compton scattering in which a photon scatters off an orbital electron, transferring some of its energy in the process.  The electron is ejected from the atom due to its newly acquired excess energy.

 The following figure shows the third type of interaction, pair production and annihilation.  In this type of interaction, a photon near a nucleus transforms (E=MC^2) into a positron and an electron.  The positron will later slow down (losing any excess energy it has) and be absorbed by an electron.  The collision of a positron with an electron results in two photons each with 511 keV of energy emitted in opposite directions.