Gravitational waves are ripples in space-time itself. It is generated when strong fields of gravity change in periodic or non-periodic ways. This causes ripples in space-time, almost like a pebble dropped in a pond will cause ripples on an otherwise smooth surface. The ripples in space-time propagate at the speed of light through space.
These waves carry energy and will rob the source or sources of energy. When the stars in a binary star system are very close together, they are theorized to radiate a lot of orbital energy as waves in space-time. This causes the orbits of the binary system to decay.
This fact led to the first, though indirect, confirmation of gravitational waves. Observations of a binary pulsar showed that the orbits actually do decay as predicted by Einstein's theory of general relativity.
Direct detection of these ripples is very difficult because they become so weak over large distances. The distance, or more precisely, the volume of space in which sources of gravitational waves have a reasonable probability to occur, is very large.
Sources of such ripples in space-time are, amongst others: supernovae, coalescing binary stars and coalescing black holes. There are a few massive detector systems built to detect such events, but up to the date of writing (early 2006), no detection has been confirmed.
The attached pdf file will give you a good overview of these ripples in space-time and the design of the detectors for them.