Obiwanwasabis writeup is a very good one, and covers most of the information about absinthe one would want to have in this thread. There's one thing I want to add, though.

Absinthe and absinth are actually two distinct drinks. The former is the famed drink made from a mixture of herbs including wormwood and anis, the latter, often also called Bohemian Absinth, is a different concoction probably invented in Czech Republic. This drink shares the wormwood, but little else, and some variations of it is supposedly made through adding spices to high-proof vodka.

The now-famed absinth-drinking ritual involving setting a cube of sugar on fire showed up together with the bohemian absinth. Absinthe, like many other anise-based alcohols, becomes "cloudy" when mixed with water (this is an effect of some of the oils found in absinthe, which I assume come from the anise due to the similar effect in for example ouzo). The bohemian absinth lacks this effect (and indeed lacks anise), and as such the other technique was invented as a marketing trick, which found its way into a number of movies.

Like absinthe, absinth does not have a high enough thujone level to have an effect. I can personally vouch for this, having imbibed it several times without feeling anything apart from the normal effects of alcohol.