Have you ever noticed that some pencils write with really light lines and some pencils come out smudgy and dark? The cause of this can be explained by what type of lead the pencil has. Leads range from hard, light-marking leads to soft, dark-marking leads in both wooden bodies and mechanical pencils.

Leads are classified by a usually 2 digit number + letter system. H stands for "Hardness" and B stands for "Blackness". The more H's you have, the harder the lead and the lighter the lines. The more B's you have, the softer the lead and the darker the lines. In the middle, you'll find the most common leads, B (#1), HB (#2), F (Firm #2 1/2), H (#3), 2H (#4)

In order, the leads are (from hardest to softest)
9H | 8H | 7H | 6H | 5H | 4H | 3H | 2H | H | F | HB | B | 2B | 3B | 4B | 5B | 6B | 7B | 8B | 9B.
Typically though leads ranging from 4H to 4B are easily available on the market.

How do you pick which lead is right for you? If you want sharp, crisp lines and you write with a light hand, then a higher H value lead is good for you. If you write with a heavy hand, then you want a lead that won't break under pressure and so a higher B value is good for you. Higher H's are typically better for drafting purposes, and higher H's are good for shading. Keep in mind that softer or higher B leads leave more lead on the paper, and so are used up more quickly than higher H leads.

For more reading, you can check out:
Wikipedia
http://en.wikipedia.org/wiki/Pencil