What is ether? How does it differ from past tokens such as bitcoin and litecoin? What are all the usages of ether?
Ether serves two main purposes for ethereum:
Just like Bitcoin and Litecoin on their respective blockchain, ether is a fungible asset/currency on the ethereum blockchain that creates the necessary incentive for miners to maintain the network.
Unlike Bitcoin and Litecoin, ether is also used to pay for the computations that you ask the network to perform. Since one can submit arbitrary code to be executed on the ethereum blockchain, this mechanism ensures that your code won't run forever and thus clog up the entire network. See the halting problem. You also need to pay ether for submitting new contracts to the blockchain, so that we won't have a million contracts using up excessive storage. When ether is used in this way, to pay for computation and storage, it is called gas.
More about gas here: https://ethereum.gitbooks.io/frontier-guide/content/costs.html
The primary use of Ether is :
To pay for Gas that are required of all transactions (contracts and non contract txs).
Ether is also used as a reward for miners who help secure the network through POW (though this will all change in the future when POS is implemented)
And because Ether has utility, this gives it a value. Which means that it can be used for exchange of services, goods, virtual tokens. This does make it similar like a currency, although it was not designed as the primary use.
May 2017 UPDATE
The role of Ether is quickly evolving beyond the original purpose for the Ethereum community, and so I want to add two emerging new uses:
(1) Start-up Financing. Bitcoins and Ethers are now being used in crowsdsales of blockchain-based products and cryptocurrency ventures, as part of ICOs (Initial Coin Offerings). Here is a list of ICOs, a number of which (like Bancor) require Ethers. https://www.smithandcrown.com/icos/
(2) As a reserve currency for smart tokens. The Bancor Network has published a white paper explaining its plan to start using the Ether as a reserve currency for the Bancor (The Ether will back the Bancor in a specific given ratio, the CRR, i.e. the credit reserve ratio, still to be announced). This will help to keep the Bancor liquid, and ensure that any smart token issued on the Bancor Network can be immediately exchanged for any other.
Read these to better understand these new roles for the Ether. https://bancor.network/static/Bancor_Protocol_FAQ.pdf https://bancor.network/static/Bancor_Protocol_Whitepaper_en.pdf https://blog.bancor.network/coins-are-networks-and-crowdsales-are-their-killer-app-a6ebc16bef31