A choanoflagellate is a single-celled organism that is generally believed to be the most closely related to multi-celled animals, and many would classify Choanoflagellata as one branch of the taxon Animalia. They might also be the ancestor of other animals.

It consists of an ovoid or teardrop body, with at one end a prominent flagellum (whip-like appendage). Around the base of the flagellum is a crown or collar of fine hair-like projections called microvilli. The creature feeds by beating the water with its flagellum, stirring up a current, and food particles adhere to the microvilli, where they can be drawn down and engulfed by the cell body. The name is from the Greek for "funnel"* and the Latin for "whip". The flagellum is also its outboard motor, though some species attach themselves to bases.

As far as is known, their reproduction is entirely asexual. They occur in both salt and fresh water.

There are about 140 living choanoflagellate species known. Some of them are solitary unicellular organisms, and some group together in colonies. However, the colonies are simply aggregations, with each cell behaving in the same way. Some choanoflagellate colonies are balls with the flagella pointing outwards, which makes them resemble the colonial alga Volvox, while others form a cupped shape and have the flagella pointing inwards, which is how sponges are arranged. Sponges (phylum Porifera) are animals that strongly resemble a colony of choanoflagellates that has started to differentiate and thereby become a multicellular organism. The feeding cells of sponges, called choanocytes, are structurally and behaviourally very similar to these creatures. A sponge looks to be a choanoflagellate colony that has given over a lot of its cells to tree-shaped structural support.

One species, of genus Proterospongia, does have some rudimentary differentiation: its colony has feeding cells on the outside, and on the inside amoeboid cells without the external projections. These reproduce while the flagellate cells move the colony. Some such arrangement would have been how choanoflagellates or something very similar gave rise to sponges, though they are too delicate to fossilise, so their ancient forms are unknown.

It is possible that this evolutionary process also gave rise to all the other animals, not just Porifera, if the ball colony is the origin of the blastula, an early stage in the animal embryo.

Colin Tudge, The Variety of Life (Oxford, 2000)
http://www.ucmp.berkeley.edu/protista/choanos.html
http://www.palaeos.com/Invertebrates/default.htm

* Often translated "collar", and these creatures are sometimes called collar-flagellates, but this is not the Greek for "collar". It means "funnel" or "melting-pot", "mould for pouring metal".