A Hackintosh is a computer using non-Apple branded hardware that runs a version of OS X that has been modified (hacked) to run on generic, non-Apple systems. When created using laptop hardware, the term "hackbook" is often used instead. It is a portmanteau of Hack and "Macintosh" indicating that the Macintosh software has to be hacked in order to get it to work on non-Apple branded hardware.
Unlike IBM, the Apple company has never believed in licensing its hardware to other manufacturers to build "clones". For a brief time, Apple did license Power Computing, Motorola, and Umax to build clones of the Mac, Steve Jobs cancelled these deals when he returned as CEO in 1997. Since then, Apple has been a strong litigator to keep its intellectual property in house. 
Prior to 2006, the Macintosh operating system used the Motorola chipset; while Windows based PCs used Intel/AMD based chipsets. This made it impossible to run an operating system on “foreign” hardware. When Apple moved to the Intel chipset, it became possible to run Windows on Apple hardware. The release of Bootcamp by Apple provided a supported method for end users to dual boot an Apple branded computer with OS X and Windows. However, Apple has continued to refuse to support the installation of OS X on non-Apple hardware.
On July 3, 2008, Apple sued Psystar Corporation for selling non-Apple hardware preinstalled with OS X on the basis that Psystar violated the Digital Millennium Copyright Act (DMCA). According to Apple, the copy protection on OS X was illegally bypassed. Despite Psystar's offer of OpenMac computers, most people were skeptical of the legitimacy of the company as they were unable to process credit cards, had a website that was frequently down, and had a physical address that changed three times in two days. It was enough for some people to label Psystar as a phishing or credit card skimming scam. On November 13, 2009, the court ruled in favour of Apple, with Psytar going out of business shortly after.
Despite these restrictions, a strong hacker/hobbyist community has grown. These communities have clear step by step instructions on installing OS X on compatible hardware. To date, Apple has not been going after hobbyists who build their own Hackintosh system.
Since Apple’s switch to the Intel processor, communities have appeared on the Internet to support the building of Hackintosh. They often provide recipes and step by step instructions describing which hardware to buy, which drivers to download, and a complete set of instructions on how to install OS X on PC hardware.
Two well known communities are the the OSx86 project, and TonyMacX86. Based on the TonyMacX86 instructions, Lifehacker has published a series of articles on creating Hackintoshes in a series of eight easy steps. In most cases, these steps require access to a pre-existing Macintosh (or a Hackintosh). In an attempt to avoid legal problems with the DMCA and software piracy, the published instructions always tell the builder to purchase a copy of the OS X software from a legitimate source.
These communities do provide freely downloadable software to make the process of building a Hackintosh as easy as possible. However, they do note that different hardware can easily result in problems. Unless you are very comfortable with the entire process of building computers and troubleshooting system errors, it is best to stick with the exact hardware and software downloads, and follow each step exactly. Skipping steps or modifying them is not recommended, down to replicating the exact names of the hard drives you install OS X on.
For those looking at only building a Hackintosh to save money, instead as a way of learning more about computers, community members will often give the advice of "just buy a Mac". Especially if the computer is to be used as more than a hobby machine.
When building a Hackintosh for the first time, it is best to stick as closely as possible to a published recipe, and exclusively use hardware that others have already used. Generally, an Intel CPU (as opposed to an AMD based CPU is used. All hard drives and optical drives need to use SATA connectors, as the Macintosh hardware does not support the older IDE standard. PCI-E video cards are often used, with NVIDA based cards being the most common. The idea is to replicate as much as possible the hardware used by Apple. Unlike the building of a standard Windows (or even Linux) based computer, the substitution of different brands of hardware can cause unpredictable results, since Apple only uses a limited set of hardware in genuine Macintosh computers.
Since Apple does not use Parallel Ports and other hardware features that are often still available on motherboards for backwards compatibility, it is common to require the builder to adjust settings in the BIOS prior to installing OS X. Should the same hardware also be used to dual boot into Windows, a common suggestion is to install two hard drives – one for Windows and one for OS X – and only have one of them plugged in when installing the Operating System in question. Once both OSes are installed, then both drives can be plugged in at the same time, and the BIOS boot order can be adjusted to suit the user.
Advantages and disadvantages of Hackintoshes
One of the major complaints about Apple is that their prices are much higher for the same hardware that is found in Windows based systems. Purchasing generic hardware gives the system builder more control over the hardware they put in. This allows more customization and upgradability to the system over time. Alternatively, the system builder can simply save money by purchasing cheaper hardware compared to what they can purchase directly from Apple..
The ability to choose the exact hardware that goes into your system is appealing to many people. They are able to use better hardware than what is found in official Apple-branded computers, even in the Mac Pro line. Price points for Hackintoshes can run between $300 and $2000, which compares to Apple models that run between $600 and $2600, for better hardware, but at the expense of more time and effort needed to install and maintain the computer.
However, because Hackintoshes are not supported by Apple they require much more effort to build and install. Kernel panics are much more common place, and software updates cannot be guaranteed to work. For people who require stability both in hardware and updates, even Hackintosh communities would recommend the purchase of a “real” Macintosh. The Hackintosh is seen more as a hobby computer, not a production machine.
Another issue with the Hackintosh is that OS X updates are not guaranteed to work. A new update can overwrite some of the drivers that are installed to make OS X work on non-Apple branded hardware causing a kernel panic during the next reboot. It is this factor that makes Hackintoshes unsuitable for production machines, since updates are considered necessary for security purposes.
Legal and ethical issues
The legal grounds for building them, even for personal use fall into a grey area. Modern tools for installing OS X on PC hardware do not modify the Apple software, they merely provide driver support. Psystar was sued for violating the DMCA, it is unclear as to the legal status for the hacks used by the community to provide OS X compatibility for non-Apple branded hardware. Proponents of the Hackintosh make the claim that the writing of driver software is not restricted by the DMCA.
The EULA for OS X Lion mentions the Apple-branded hardware requirement in several sections:
SOFTWARE LICENSE AGREEMENT FOR MAC OS X For use on Apple-branded Systems
Apple Software is supported only on Apple-branded hardware
Apple Boot ROM code and firmware is provided only for use on Apple-branded hardware.
When installing OS X on non-Apple hardware for personal use, others claim that the law allows for adaption for legally purchased software to be installed on the hardware of your choice, which would indicate that EULA restrictions cannot apply.. Their claims about Apple not being allowed to sue are untested in court, especially given the fact Apple has not gone after mere hobbyists for building Hackintosh computers. Instead, Apple currently appears to tolerate Hackintosh building, as long as it doesn't proceed past "science fair mode", but will act when and if Hackintoshes become available for public sale.