What is Ether?
Ether is a necessary element — a fuel — for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations. To put it another way, ether is the incentive ensuring that developers write quality applications (wasteful code costs more), and that the network remains healthy (people are compensated for their contributed resources).
MORE INFORMATION ON MINING
Ethereum's proof of work algorithm does not make use of Scrypt or Sha256, instead, it leverages EtHash, a Hashimoto / Dagger hybrid. You can read all about the theory behind this and its design in the Ethereum gitBook, mining chapter. Note that for Serenity (a future release, a major milestone on the Ethereum development roadmap) we are planning to switch to Proof of Stake (PoS).
The Ethash proof of work algorithm is memory hard, you'll need at least 1+GB of RAM on each GPU. I say 1+ because the DAG, which is the set of data that's being pushed in and out of the GPU to make parallelisation costly, will start at 1GB and will continue growing indefinitely. 2GB should be a good approximation of what's needed to continue mining throughout the year.
Mining prowess roughly scales proportionally to memory bandwidth. As our implementation is written in OpenCL, AMD GPUs will be 'faster' than similarly priced NVIDIA GPUs. Empirical evidence has already confirmed this, with R9 290x regularly topping benchmarks.
ASICs and FPGAs are strongly discouraged by being rendered financially inefficient, which was confirmed in an independent audit. Don't expect to see them on the market, and if you do, proceed with extreme caution.
