Formerly known as Decoration Day, it commemorates U.S. men and women who died while in the military service.
It was first enacted in 1868 to honor Union soldiers of the American Civil War (it is celebrated near the day of reunification after the Civil War), and was expanded after World War I to include American casualties of any war or military action.
Memorial Day weekend has come to signify the unofficial beginning of summer, and Labor Day weekend as the unofficial end of the season.
According to Wikipedia, there is a movement afoot to return Memorial Day to May 30th in order to re-emphasize the importance of remembering our fallen heroes. I think this is a fine idea, especially since I was born on this day, and it was always really special having my birthday on a national holiday.