What is Litecoin?
Litecoin is an alternative cryptocurrency based on Bitcoin. While some think of it as silver to Bitcoin's gold (see criticism), it is more accurately defined by its faster block rate (2.5 minutes) and its use of scrypt for primary hashing done in mining.
While scrypt provided resistance to GPU-based mining early on, Litecoin has since been most efficiently mined with GPUs. One of the aims of Litecoin was to provide a mining algorithm that did not compete with Bitcoin and with the rise of ASIC mining for Bitcoin, Litecoin will increasingly be the primary use for GPU's in cryptocurrency mining.
Differences from Bitcoin
Litecoin had two blocks premined, one more than the minimum single genesis block needed to start a block chain.
Scrypt Proof of Work
Litecoin uses scrypt as a proof-of-work scheme. Scrypt adds memory-intensive algorithms to reduce the efficiency of the kind of parallelization that GPUs offered in early Bitcoin mining. This led to it primarily being mined with CPUs at the beginning. Later, GPU-based mining was developed and is now the dominant mining technology for Litecoin. This is good in the short term, but is almost certainly harmful if Litecoin were to gain widescale adoption (see criticism)
Faster, Smaller Block Chain
The Litecoin blockchain differs from its Bitcoin counterpart in that it tries to have smaller blocks, and generate them four times as fast as the Bitcoin network allows. This means that 1-confirmation (low value) merchants get faster confirmations for their online products, but increases the network overhead.
Miners generate 50 coins per block, like Bitcoin. In light of faster blocks, to properly mimic Bitcoin's generation trajectory, the amount of coins generated gets halved every 840,000 blocks. As a result, Litecoin is scheduled to produce roughly 4 times as many coins as Bitcoin, about 82 million litecoins.
Litecoin does not provide anything significant that Bitcoin does not already provide. Because of this, and Bitcoins much greater size, it is unlikely to gain any significant momentum.
Not Silver to Gold
Litecoin cannot be "silver to bitcoin's gold", because Bitcoin itself is both gold and silver: While in the long-run, the BTC unit may be too valuable for everyday trade ("gold"), there are other, much smaller units that can just as well serve the purpose of "silver" while being naturally/automatically "converted" to/from BTC.
Vulnerability to mining monopoly
Similarly to Bitcoin, Litecoin can be attacked by a rich entity (on the scale of big corporations and governments). Also similarly to Bitcoin, this attack becomes more difficult to orchestrate the higher the hash rate of the network. However, because Litecoin is designed to be inefficient on all common computer components (both CPUs and GPUs), a malicious entity needs only produce a single piece of specialized/custom hardware to overtake all the commodity mining systems combined.
Since the aforementioned reasons mean Litecoin has no future potential, it effectively functions as a pyramid scheme, rewarding those who get in sooner at the expense of those who adopt it just before it finally fails (and are left with nothing). This is not the case for Bitcoin, since it has significant potential to become a long-term currency and continually be beneficial to adopters no matter when they begin using it.