Pronounced "Cait Shee."
In Scottish folk tales, Cait Sith is a fairy cat living in the highlands. The cat is black all over save a small white spot on its chest. In folklore the cat was very large and aggressive; these characteristics were sometimes linked to the theory that the cat was a transmogrified witch.
It is likely that the Cait Sith character from stories was based upon a large black cat that does live in Scotland, being a cross between native wildcats (called the 'Kellas cat') and feral domestic cats. In recent times there have been persistent sightings of big cats in the United Kingdom, and witnesses have tended to describe the animals as unusually large and black and likened them to pumas, lynx and panthers. In 1980 a puma was even captured near Inverness, Scotland and is now stuffed and on display in the Inverness museum (it died of natural causes).
Cait Sith is also a character in the Final Fantasy series of video games, and that character seems to be very loosely based on the folk lore version. Before this, the cat was featured in the Japanese game Puyo Puyo, where it was represented as a twin pair of siamese cats who made comical noises when they were defeated.