Net neutrality refers to the attribute of a network whereby it approaches all traffic over the network without bias. It is important because it extends the principles of equality and democracy to the Internet. Without it, the owners of the network can act as gatekeepers, blocking some traffic or charging a fee to let it pass.
Without net neutrality, the open system that we understand as the Internet could, at the discretion of corporations that own the wires that make up the Internet, become a closed system, possibly resembling what we now see with cable television or with cell phones. Ownership of infrastructure becomes leverage over content.
Broadband providers can give priority to their own content or to the content of selected partners, or charge. They can offer their own Internet-based applications, like VOIP, and block the applications of competitors. They can even censor content that is critical of them or otherwise not to their liking.
Where did net neutrality come from?
When the Internet traveled over phone lines, the regulations governing phone lines applied. That included measures dating back to the early 20th century that required the interoperability of different service providers and net neutrality, the non-hierarchical treatment of traffic over the wires. The system was "open access," which means the owners of the wires are required to lease access to their competitors, which is key for lowering the barrier to entry into the market. These regulations of telephone networks promoted a system that connected everyone on an equal footing.
Now that the Internet travels over all kinds of wires (and wirelessly through the air) and thanks to some regulatory sleight of hand by the FCC, there is little or no protection against content discrimination on the Internet. This lack of regulation was affirmed by the Supreme Court in the Cable vs. Brand X decision, which set a sunset of September 2006 for those old regulations.
So what now?
So now proponents of an open Internet are pushing for new regulations. There is considerable debate over how to write net neutrality into law, however. The conditions placed on the recent AT&T-Bell South merger included a net neutrality provision, but it is limited so there is some concern over whether this will ultimately be effective. It's certainly a start. There are now net neutrality bills in Congress sponsored by Senators Snowe and Dorgan and Representative Markey.
The coalition pressing for net neutrality is the SaveTheInternet.com coalition, housed at and directed by Free Press but including a lot of groups, bloggers, gamers, and more. Their goal is to make net neutrality the law in 2007.
Some state and local governments are not content to wait quietly for federal action. Madison has passed a resolution in favor of net neutrality and now New York City is considering a similar measure. Maine is considering making net neutrality the law in the state.