The Blu-ray format was created to accommodate the high resolution (HD) video and audio formats that were becoming more and more common. The Blu-ray format was designed by a partnership of companies called the Blu-ray Disc Association (BDA). This Association is comprised of world leaders in technology such as Apple, Mitsubishi, and Sony among many others.
Using a blue-violet laser (hence the name) that has a shorter wavelength then the red laser a DVD player uses, Blu-ray discs can typically hold 25-50GB of data (larger sizes are possible). This additional storage can provide cinema quality audio and video for the home and games that introduce much higher resolutions and fidelity.
The Blu-ray format has evolved over time and each enhancement has added functionality to the end user. Blu-ray movies now feature picture-in-picture technology and web enabled functionality to enhance the overall experience. Releases with these features are called BD-Live enabled and are commonplace within modern releases.
When the Blu-ray format was introduced an alternate format was also revealed as HD-DVD. After a lengthily format war Blu-ray eventually won due to overwhelming studio support and the fact that every PlayStation 3 is equipped with a Blu-ray drive.