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
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 Litecoin primarily being mined with CPUs at the beginning. Later CPU-based mining was largely replaced by more energy-efficient GPU-based mining, currently the dominant Litecoin mining technology.
The Litecoin blockchain differs from Bitcoin in that it generates blocks every 2.5 minutes on average (four times Bitcoin's rate). This means that merchants who accept 1-confirmation transactions get that first confirmation more quickly. Unfortunately, this increases the number of hashes that are wasted in mining since miners will working from the non-best block more of the time.
84 Million Litecoins
Litecoin started with miners generating 50 coins per block as with Bitcoin, but to maintain Bitcoin's inflation rate chage schedule, the block reward gets halved every 840,000 blocks. As a result, the newtork is scheduled to produce a total of 84 million litecoins.
Litecoin had two blocks premined, one more than the minimum single genesis block needed to start a block chain.
Besides a faster first confirmation and the scrypt-based mining algorithm, Litecoin does not provide any other features over what Bitcoin provides. Because of this and Litecoin's later start, detractors claim Litecoin is unlikely to match or surpass Bitcoin's value or user-base.
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.