Kana is a general term for two types of alphabet-based Japanese script: hiragana (かな) and katakana (カナ). These were developed as an alternative and adjunct to ideograph based characters of Chinese origin, or Kanji (仮名).
Katakana is used to write foreign names and foreign words that have become a part of the Japanese language. For example, United States President George W. Bush can be expressed as ジョージ・W・ブッシュ (middle initials of Western names generally use the Roman alphabet.)
Hiragana are mostly used to indicate grammatical aspects of the language, and sometimes represent an entire word instead of kanji. They may also be written in small form above or next to a kanji in order to show its pronunciation. This practice, known as furigana, is now largely confined to writing for children.
Kana are traditionally said to have been invented by the Buddhist priest Kukai in the 9th century. Kukai certainly brought the Siddham script home on his return from China in 806 CE; his interest in the sacred aspects of speech and writing led him to the conclusion that Japanese would be better represented by a phonetic alphabet than by the kanji which had been used up to that point.
See also: Hiragana, Katakana, Kanji, Furigana, Romaji, Transliteration