Ether is the currency used throughout the Ethereum decentralized network.
Ether, the currency is a mandatory element -- a fuel -- for operating the decentralized distributed application platform Ethereum. It is a form and method of payment made by the clients of the platform to all of the machines executing the requested operations on the network. It is a currency. To put it another way, ether is the financial incentive ensuring that all of developers write quality applications on the network (wasteful code costs more), and that the decentralized network remains healthy (people are paid for their contributed resources).
What's the relationship between ether and bitcoin?
Ethereum, Ether would never have been possible without bitcoin—both the currency and the technology—and ethereum and ether are not considered a competing currency but as complementary currency and network within the digital ecosystem. The foundation states that ether is to be treated as "crypto-fuel", a token whose purpose is to compensate for computation, and is not intended to be used as or considered a currency, share, asset or anything else.
These statements by the foundation may be true, however ether is a currency and is positioned to be a future competitor to bitcoin, however there is plenty of room in the crypto-currency space for multiple currencies.