A ground rod is a metal shaft used for grounding an electrical system. Until recent years a house's electrical system was grounded to the plumbing system, allowing the underground pipes and drains to act as a giant electrode. But now that plumbing is becoming overwhelmingly plastic (PVC and PEX), it is necessary to make other arrangements. Usually, a contractor will hammer a metal ground rod (or two) into the ground, and ground the wiring system to that.
These rods are generally made out of iron or steel, are at least 8-feet long, and at least 5/8 inches thick. This description may sound familiar to you; it is indeed possible, in some cases, to get away with using a section of rebar. Some building codes require that you buy poles manufactured specifically as ground rods, available in your local hardware store. Non-ferrous or copper-coated bars are available; they are usually thicker, and thus harder to hammer into the ground. They should not be used without the building inspector's approval. Most codes call for ground systems of 25 ohms or less; pipe-grounded systems that do not meet this requirement may have a ground rod added onto them to lower the overall resistance. On the other hand, if there are no obvious problems in placing the bars, most inspectors will not bother to test the ohms.
The ground is generally run directly from the neutral bar (neutral bus) of the main electrical service panel box outside to the ground. Some electrical codes require two ground rods, to be placed at least 6 feet apart, although the extent to which this code is enforced varies greatly. The copper (#6 AWG or greater) grounding line is buried a few inches below the ground, and attached to the rods with metal screw clamps ('bugs'), rated for underground burial.
In rocky ground where hammering in a rod is nearly impossible, it may be permitted to bury the rod in a trench or hammer it in at a 45 degree angle. It may also be possible to hammer the rod two feet into the ground, saw it off, and hammer the end a bit until it looks like you spent a day laboriously hammering it eight feet into the ground. I do not recommend doing this, as it would be bad for you if you got caught, but I'm told that many contractors resort to this if they feel that the house is sufficiently grounded and the earth is sufficiently rocky. A tricky builder could easily check the resistance and saw off the pole once it met code -- the inspector is most certainly not going to try digging the pole back out.
If you are installing a ground rod in a new construction under the watchful eye of the building inspector, ask him about every little detail. The codes are complex, and vary
from state to state and, in effect, from inspector to inspector. If you are installing a ground rod unofficially for your own safety, don't stress too much. The code contains some overkill, and an eight-foot bar safely grounded provides ample protection for most systems, even if you use an odd clamp or bury it at a 20-degree angle.
You may also use grounding bars in other contexts; ham towers and dish antennas may need grounding rods, for example. These rods are often smaller, often only four feet in length, and are often made of copper.
Transitional Man says "In dry sandy soil it may be necessary to use a ground loop, where a bare conductor is run underground in a loop with multiple ground rods. Sometimes such an array is used where electrical grounding is especially important."
rootbeer277 says "...a tip to make driving ground rods easier: if you keep a jug of water nearby and muddy up the ground, you can basically just push a rod into non-rocky earth by hand by keeping the hole good and saturated."