A public key infrastructure (PKI) is a set of roles, policies, and procedures needed to create, manage, distribute, use, store, and revoke digital certificates and manage public-key encryption - wikipedia 
The purpose of a PKI is to facilitate the secure electronic transfer of information for a range of network activities such as e-commerce, internet banking and confidential email.
Principle of a public key infrastructure.
Rough outline: A user applies for a certificate with his public key at a registration authority (RA). The latter confirms the user's identity to the certification authority (CA) which in turn issues the certificate. The user can then digitally sign a contract using his new certificate. His identity is then checked by the contracting party with a validation authority (VA) which again receives information about issued certificates by the certification authority.
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It is required for activities where simple passwords are an inadequate authentication method and more rigorous proof is required to confirm the identity of the parties involved in the communication and to validate the information being transferred.
In cryptography, a PKI is an arrangement that binds public keys with respective identities of entities (like people and organizations).
The binding is established through a process of registration and issuance of certificates at and by a certificate authority (CA). Depending on the assurance level of the binding, this may be carried out by an automated process or under human supervision.
The PKI role that assures valid and correct registration is called a registration authority (RA). An RA is responsible for accepting requests for digital certificates and authenticating the entity making the request. In a Microsoft PKI, a registration authority is usually called a subordinate CA.
An entity must be uniquely identifiable within each CA domain on the basis of information about that entity. A third-party validation authority (VA) can provide this entity information on behalf of the CA.
# See also - PKI - Methods of certification * Design * History * Uses * Open source implementations * Criticism