Genjutsu is an illusion that a shinobi casts on his opponent. It is very difficult to master since it requires shinobis to have excellent chakra control and high intelligence.
It is achieved by driving one's own chakra into the brain of the opponent in order to affect his five senses and replicate the physical environment, adding some kind of painful experience to it. The more detailed the illusion, the more difficult it is for the opponent to get out of it. However, once a shinobi is aware of the genjutsu, he can cast it off by hurting himself, either by stabbing himself or biting his tongue. An alternative way to get out of genjutsu is to have someone release you from it, or possess a doujoutsu like sharingan or byakugan. Jinchuurikis who are in communion with their bijuu (i.e. Killer B) are immuned to genjutsu because the bijuu will release him from it.
Examples of genjutsu users:
- Regular genjutsu: Kurenai (which btw is very beautiful and should wear an ever shorter skirt... too bad she's pregnant though)
- Visual genjutsu: Itachi Uchiha (the ultimate spammer of genjutsu)
- Sound Genjutsu: Tayuya... there's the toads also
That's about all I know on genjutsu.