Iaido is a traditional Japanese martial art with a history going back over 450 years. The essential elements of iaido are drawing the sword, executing a set of sword techniques, a technique representing the removal of blood from the blade (chiburi), and resheathing the sword (noto). It is a martial art consisting of kata only which are performed individually using a Japanese sword (katana/uchikatana) which may be referred to as an iaito in this context. In practice the edge of the sword is usually dull, though many use a live sword (shinken). Occasionally, kata may be practiced with a partner. Note that these techniques are always prearranged; there is no free sparring in iaido.
While iaido is not a combative sport, it is a martial art. In iaido/iaijutsu, the practitioner defends against and attacks an imaginary enemy or enemies as is true in all martial arts where forms are involved. Generally, the iaidoka imagines a surprise attack to which he/she must react, defend and then dispatch enemies in a precise and efficient manner. Iaido/iaijutsu is not solely art of self defence. There are kata which offensive - some depicting assassinations and executions.
Name and context
Iaido is written using three Chinese characters 居合道. The first one 居 can mean "to exist", "to stay", or "a dwelling". The second character 合 can mean "to fit", "to suit", or "to unite". And the last character 道 can mean "road", "path" or "way". Putting that together, Iaido means the way of suiting or adapting to a situation. Certainly, this makes sense in the context of this martial art. As mentioned above, the case is often a surprise attack. In the daily life of a samurai he may find himself walking down the street, drinking in establishment, or working on a scroll when he is suddenly under attack. In such a case, one must react and adapt to the situation at hand and dispatch enemies as necessary. Of course there exist other translations and interpretations of 居合道 from "the art of mental presence and immediate response" to the more philosophical "art of fitting into all life's situations" and so on.
Nukitsuke - the act of drawing a sword to put pressure on an opponent and/or forestall an attack (literally "draw, affix")
Nukiuchi - the act of drawing a sword and striking in the same motion (literally "draw, strike")
Sayabiki - Pulling the saya (scabbard) back and down as one draws the sword (literally "scabbard, pull")
Noto - returning the sword to the scabbard (literally "put away, sword")
Chiburi - the act of shaking the blood from the blade (literally "blood, shake")
more to come...
More resources on Iaido/Iaijutsu:
Wikipedia article on Battojutsu
Kensei.org on some "other bits" related to Iaido