Cyanobacteria are aquatic and photosynthetic, that is, they live in the water, and can manufacture their own food. Because they are bacteria, they are quite small and usually unicellular, though they often grow in colonies large enough to see. They have the distinction of being the oldest known fossils, more than 3.5 billion years old, in fact! It may surprise you then to know that the cyanobacteria are still around; they are one of the largest and most important groups of bacteria on earth.
Many Proterozoic oil deposits are attributed to the activity of cyanobacteria. They are also important providers of nitrogen fertilizer in the cultivation of rice and beans. The cyanobacteria have also been tremendously important in shaping the course of evolution and ecological change throughout earth's history. The oxygen atmosphere that we depend on was generated by numerous cyanobacteria during the Archaean and Proterozoic Eras. Before that time, the atmosphere had a very different chemistry, unsuitable for life as we know it today.
The other great contribution of the cyanobacteria is the origin of plants. The chloroplast with which plants make food for themselves is actually a cyanobacterium living within the plant's cells. Sometime in the late Proterozoic, or in the early Cambrian, cyanobacteria began to take up residence within certain eukaryote cells, making food for the eukaryote host in return for a home. This event is known as endosymbiosis, and is also the origin of the eukaryotic mitochondrion.
Because they are photosynthetic and aquatic, cyanobacteria are often called "blue-green algae". This name is convenient for talking about organisms in the water that make their own food, but does not reflect any relationship between the cyanobacteria and other organisms called algae. Cyanobacteria are relatives of the bacteria, not eukaryotes, and it is only the chloroplast in eukaryotic algae to which the cyanobacteria are related.
Images of Nostoc and Oscillatoria provided by the University of Wisconsin Botanical Images Collection.
For more information about cyanobacteria on the web, visit Cyanosite, a webserver dedicated to cyanobacterial research.
Information about the ecology of fresh-water cyanobacteria is available from the Soil and Water Conservation Society of Metro Halifax.
The Tree of Life has a preliminary page on the Cyanobacteria, with some very nice pictures.