Ether is the native token used to transact on the Ethereum blockchain. Whilst the name Ethereum refers to the technology, client software and mainnet (public network), Ether is its digital currency. On cryptocurrency exchanges, Ether goes by the ticker ETH.
To use the Ethereum blockchain, to execute a smart contract or simply to move Ether from one address to another, a fee must be paid. This fee incentivises the mining nodes – the individual computers that enable the network to run – to carry out the work of processing transactions.
Ether, however, was also created and sold in order to crowdfund the development of Ethereum. An amount was pre-mined, created from nothing before mining commenced, and much of this pre-mined Ether is still used to fund ongoing development.
In addition to Ether used on the mainnet, there is also Ether used on the testnets. Testnet Ethers have no value, however, and are only used for testing (for which they are available free).
Eventually, Ethereum will have the potential to run smart contracts funded by other cryptocurrencies, such as bitcoin. Ether will become just one of the options to use.
Network effects may see bitcoin become the dominant token used on the Ethereum blockchain, or Ether may be favoured. Or another token completely, such as the more privacy-focused Zcash may yet dominate. Plus, there continue to emerge new tokens based upon Ether, allowing Ether a completely different network effect.