In a wedding party, the maid of honor is the head bridesmaid and the principal supporter of the bride. She keeps the bride sane, helps the bridesmaids get ready for the wedding, and (in many modern ceremonies) makes a speech following the best man's speech. She may also hold the groom's wedding ring until the bride puts it on his finger.
If the woman who is thus honored is married, she is presumed not to be a maid (i.e. virgin), and is therefore called the matron of honor. Her duties do not generally change unless there is also a maid of honor, in which case the role of the matron of honor is created by the mutual agreement of the women involved. A single woman is politely presumed to be a maid for ceremonial purposes; you need not decline this signal honor on a technicality, even if it is publicly known both that you are not a virgin and that the groom was directly responsible. Indeed, unless the technicality occurs after the engagement is announced, it would be spectacularly weird to consider yourself disqualified on such grounds.
If you've been asked to be the maid of honor, congratulations! Your friend will need as much help as you can give her; being a bride is the most exasperating thing a woman will ever have done before. You will be her confidante, her lieutenant, and her therapist more than ever. You will also help the bridesmaids with their duties, since the bride will undoubtedly have enough to do already.
You will probably be responsible for arranging, and paying for, a bachelorette party. While women were not traditionally encouraged to sow their wild oats (and that may receive the Ms. Magazine award for understatement of the year), today's bride feels no reason to allow herself to be excluded from good clean fun involving booze, a stripper, and a half-dozen starving monkeys. It's your job to make sure she enjoys the party, so find out exactly what she wants. It's also your job to make sure she survives with her health and good reputation intact. Remember, if the bride can't make it to the wedding, the maid of honor would traditionally take her place. While this may seem an easy way to marry a good man, you will probably enjoy your own wedding more if, for example, your own name were on the napkins -- so take care of the bride!
At the reception, you may be called upon to toast the bride just before or after the best man's speech. The aims of your speech are nearly identical to his; the speeches I've heard from maids of honor have tended to contain more emotional content and fewer jokes involving barnyard animals. Remember that about half the audience knows the groom much better than they know your dear friend the bride, so show them what makes her such a great person.
Being a maid of honor will give you a scary, but educational, look at what goes into a wedding. It can be exhausting. It can also be loads of fun. Remember to talk to the bride about what she would like you to do, and enjoy yourself!