The Shadow Clone Technique is a cloning ninjutsu created by Tobirama Senju. Unlike the illusory copies of the basic Clone Technique, shadow clones are material: they copy the clothing, equipment, and physical state of the user at the moment of creation. Chakra is distributed equally between the original and each clone - one clone gets half the reserves, two clones get a third each, and so on. Such rapid depletion of reserves makes the technique dangerous for shinobi with a small amount of chakra, so only those of jonin level and above can safely use it. Naruto Uzumaki is an exception due to his access to the Nine-Tails' chakra and can create hundreds of clones without visible detriment.
Shadow clones are visually and by chakra signature indistinguishable from the original even to dojutsu, although Uchiha Madara is able to recognize them. They possess their own chakra and can perform techniques, including creating new shadow clones. Upon dispersion - from a hit or at the user's will - all accumulated experience and remaining chakra are instantly transferred to the original. This property is actively used for intelligence gathering: a clone infiltrates enemy territory, completes a task, and disperses, passing the obtained information to its master.
Kakashi Hatake discovered that shadow clones can accelerate learning: an hour of training with one clone gives two hours of experience after its dispersion, and hundreds of clones compress weeks of practice into hours. However, the colossal chakra expenditure and accumulation of fatigue make this method accessible to practically only Naruto.
In battle, clones serve for distraction, encirclement, and overwhelming with numbers. A subtle connection is maintained between the original and the clones, allowing coordination of actions.