VIX is the ticker symbol for the Chicago Board Options Exchange's "Volatility Index," nicknamed the "fear index." VIX is a weighted index derived by measuring the implied volatility of 30-day S&P 500 index options. Popularly referred to in the media as Wall Street's "fear gauge," the VIX tends to spike during market selloffs, and decline during bull markets. The VIX is widely used as a means of assessing market risk, and VIX index options (and VIX-based ETFs) are widely used as a means of hedging.
The VIX was originally introduced in 1993 based on the research of Duke University professor Robert Whaley (now at Vanderbilt). Although the VIX measures the level of volatility the market *expects* will prevail over the next 30 days, studies have shown that it is not particularly good at actually *predicting* what that volatility will turn out to be. Instead the VIX has come to be used primarily as a sign of how fearful the market is *right now*.
However, although the VIX tends to spike during bearish moves, it is technically only a measure of volatility, and thus does not actually measure fear. In theory the VIX will spike during drastic upward moves as well, although in general markets tend to rise more slowly (ie less volatility) and fall more quickly (ie with more volatility).