Introduction:
LEDs create light by electroluminescence in a semiconductor material. Electroluminescence is the phenomenon of a material emitting light when electric current or an electric field is passed through it - this happens when electrons are sent through the material and fill electron holes. An electron hole exists where an atom lacks electrons (negatively charged) and therefore has a positive charge. Semiconductor materials like germanium or silicon can be "doped" to create and control the number of electron holes. Doping is the adding of other elements to the semiconductor material to change its properties. By doping a semiconductor you can make two separate types of semiconductors in the same crystal. The boundary between the two types is called a p-n junction. The junction only allows current to pass through it one way, this is why they are used as diodes. LEDs are made using p-n junctions. As electrons pass through one crystal to the other they fill electron holes. They emit photons (light). This is also how the semiconductor laser works.
Currently the LED lamp is popular due to it's efficiency and many believe it is a 'new' technology. The LED as we know it has been around for over 50 years. The recent development of white LEDs is what has brought it into the public eye as a replacement for other white light sources.

Inventors and developments:
The early years of the 1960s consisted of a 'race' in the field of semiconductors. Gallium arsenide and germanium were some of the first semiconductors uses before silicon became the preferred material in the industry. Engineers were experimenting with p/n junctions. These devices were being developed as diodes since they can pass current in one direction by not the other. GE, Bell Labs,Lincoln Labs, RCA research labs, and Texas Instruments worked to develop semiconductors for power control and laser technology.

It was in this race that the LED was 'discovered' in the Fall of 1961 by James R. Biard and Gary Pittman. Gary had been working in the related field of solar cells since 1958. In their efforts to try to make an X-band GaAs varactor diode they created tunnel diodes (which had been developed first at Esaki). They placed the tunnel diode on a GaAs substrate and discovered that there must be light production going on during forward bias operation. Using an infrared detector just brought in from Japan they tested it and discovered that the devices lit up brightly!

Soon after this others made discoveries in the field, however TI was the first to get a patent and sell the first LED for $130 each. The SNX-100 was the first LED sold (summer of 1962). The LEDs were first used with IBM computers to replace tungsten bulbs that controlled punch card readers (infrared light was sent through the holes, or blocked by the card). Today there is a myriad of applications for the LED.
Advantages:
-Energy efficient source of light for short distances and small areas. The typical LED requires only 30-60 milliwatts to operate
-Durable and shockproof unlike glass bulb lamp types
-Directional nature is useful for some applications like reducing stray light pollution on streetlights 

Disadvantages:
-May be unreliable in outside applications with great variations in summer/winter temperatures, more work is being done now to solve this problem
-Semiconductors are sensitive to being damaged by heat, so large heat sinks must be employed to keep powerful arrays cool, sometimes a fan is required. This adds to cost and a fan greatly reduces the energy efficient advantage of LEDs, it is also prone to failure which leads to unit failure
-Circuit board solder and thin copper connections crack when flexed and cause sections of arrays to go out
-Rare earth metals used in LEDs are subject to price control monopolies by certain nations
-Reduced lumen output over time

Common uses: indication lights on devices, small and large lamps, traffic lights, large video screens, signs, street lighting