Necronomicon

Klaatu!... Verata!... N!... n... necktie... nectar... nickel... The Necronomicon is a fictional sacred book developed discovered by writer H.P. Lovecraft for use in his stories. The book was meant to be a common point of background for Lovecraft stories. Since the time of Lovecraft, several real books have been written and published under the name Necronomicon, though none are known to have the mystical powers attributed to them by Lovecraft’s stories. This is generally thought to be the maximal-utility state of affairs by those who prefer not to have soul-eating eldritch cyclopean gibbering madnesses called into our world out of indescribable gulfs beyond all sane conceptions of space and time.

Origin
The first mention of the book was in the story The Hound, written in 1922. The name was developed by Lovecraft to mean "an image of the law of the dead," coming from the Greek nekros (dead), nomos (law), and eikon (image). A much cooler translation from the words can be made as "concerning the dead."

When asked about the origins of the Necronomicon, Lovecraft admitted that its origins were entirely fictional:

Now about the "terrible and forbidden books" — I am forced to say that most of them are purely imaginary. There never was any Abdul Alhazred or Necronomicon, for I invented these names myself. Robert Bloch devised the idea of Ludvig Prinn and his De Vermis Mysteriis, while the Book of Eibon is an invention of Clark Ashton Smith's. Robert E. Howard is responsible for Friedrich von Junzt and his Unaussprechlichen Kulten...  As for seriously-written books on dark, occult, and supernatural themes — in all truth they don’t amount to much. That is why it's more fun to invent mythical works like the Necronomicon and Book of Eibon.

Lovecraft did write a fictional history of the book, adding to the book’s mystique. According to this fictional history, the Necronomicon was written by a "Mad Arab" named Abdul Alhazred, sometime in the 8th century. Careful scholars will note that Abdul Alhazred is not only not a proper Arabic name, but was in fact a childhood persona created after reading Arabian Nights, which shows the level of research that went into Lovecraft's fake book.

Hoaxes and woo
Despite the fact lie that Lovecraft made up the Necronomicon out of whole cloth, and admitted to doing so, many people believe the book to be a real 8th century tome written by a mad Arab who is capable of summoning the Old Gods and performing magick (the "k" makes it special).

Since the time of Lovecraft, several authors have attempted to cash in on the alleged Necronomicon by writing and publishing their own. In the late 1970s, a Necronomicon was published that has come to be known as the “Simon Necronomicon”, which many people believe is an actual translation of the original text, despite the fact that no original has ever been found or referenced by any written work before Lovecraft in the 1920s. Several other books have been published since the 1970s under the name Necronomicon, all of which claim to be from the 8th century, none offering any proof. This is the book which painter and designer H.R. Giger claimed to draw his inspirations from.

Quasi-religions have even sprung up around the published Necronomicons, specifically the Simon Necronomicon. Since a good portion of the book is a catalog of magic that can be performed, some readers of the book believe that they can actually perform this magic. People claim to being able to perform spells and conjure actual forces of evil mentioned in the book. These abilities seem to mysteriously vanish when cameras are present, leading some to believe they might not be true.

There is also a book calling itself the Necronomicon written by a man named Donald Tyson, which is actually something Lovecraft would have approved of, since the book is written much in the same way as other shared universe writings of the Cthulhu Mythos. If you're into that stuff, the book is a pretty good read. On the other hand, Lovecraft probably wouldn't have approved of the bookshelf's worth of content Tyson wrote that apparently are genuine occult works derived from the Cthulhu Mythos.

The hoax nature of these books hasn't stopped Satanic panic purveyors like Bob Larson, however, from claiming that reciting any magic spells from the Necronomicon results in demonic possession. You have been warned.

In summation
It's just a bit of fun. It's a spooky book that's used as a plot device in Lovecraft's other books and which is a good read for fans of horror. It's not meant to be taken seriously. Obviously some lunatics do, just like the ones who thought Sherlock Holmes was a real person or that The Matrix is real.

Related
The works of Terry Pratchett and Neil Gaiman sometimes reference a book called the "Necrotelicomnicon", roughly translated "The Book of Dead Telephone Numbers" or simply "Phonebook of the Dead". It is also sometimes called Liber Paginarum Fulvarum, Latin for "The Book of Yellow Pages".