Background
Around 1940, the Germans were searching for a method to guide bombers to their targets when they couldn't see the ground. This would enable night raids, against which the Allied air defense was pretty much defenseless at the time. Anti-aircraft guns were practically useless in darkness and Allied night fighters were obsolote Bristol Blenheims. Additionally, although they had ground-based radars, they didn't have airborne ones, so the defenders had to rely on visual sighting to locate the attackers.
The solution was found in the civilian Lorenz blind landing system, a radio beam guidance system on airports that enabled aircraft to land in bad weather. It used two beams transmitted from the end of the runway, which the landing aircraft would detect and give signals to the pilot accordingly to help him stay on a good approach path. They used this system in reverse: to guide the bombers away from the airports, accurately to their targets.
The first such system was the Knickebein, consisting of the Lorenz system at Kleve airport and a second beam at Bredstet. The bombers, equipped with ultra-sensitive sensors to detect the beams from extreme distances, got the direction to the target from the Lorenz system. While flying towards the target, when they detected the second beam (intersecting the first one over the target) they would drop the bombs without needing to rely on visual sighting.
The Allied countered this system by equipping search planes with Hallicrafters S-27, the only device capable of detecting the Knickebein beam. They soon developed jammers to interfere with the system. Since the Knickebein was called "Headache" by the British, it was only logical to name the jammers "Aspirin."
Since the Knickebein was made useless by Allied jamming, the Germans developed another similar system, which was much more complicated, consisting of five beams. The first coarse beam lead the aircraft close to the target, after which a second, fine beam lead them to the last three beams which intersected the second, while warning the crew of the approaching target. The system then calculated the ground speed of the bomber based on the time interval between the third and fourth beams. When reaching the fifth beam, a timer was started, which released the bombs automatically over the target.
The British quickly improved their jammers and called the new version "Bromide", again rendering the guidance system useless.
Also known as Y-Geräte (Y-Apparatus), this was the third and final version of the system. The Germans made a fatal mistake in naming the system: Wotan (aka Odin) was the head god of Norse mythology, and had only one eye. The Allied made a clever guess that Wotan was a single beam system, making it much easier to develop a countermeasure for it. Wotan indeed used a single beam, in which was encoded both direction and range information. The aircraft received the beam sent from the ground station and then sent it back. The distance to the bomber was calculated from the time the signal traveled (similar in concept to pinging in modern networks and laser rangefinders).
Wotan was actually much simpler to interfere with than the two previous system, and not only because of the badly chosen name. The British had to just pick up the beam from the German bombers themselves and re-send it to the German ground station, resulting in incorrect information and ruined accuracy for the bombers.
Sources:
http://home.earthlink.net/~nbrass1/enigma.htm