Some background (Taken from Quartz):
Ethereum is similar to bitcoin, but it also supports smart contracts, agreements written in computer code that execute automatically when conditions are met.
Distributed Autonomous Organization (DAO) sought to build a humanless venture capital firm that would allow the investors to make all the decisions through smart contracts. It was one of the biggest crowdfunding effort in history. For Ethereum, the backbone of the project, it was a major vote of confidence in its nascent technology.
Then it got hacked, when someone started siphoning money out of the DAO. By the end, the hacker, who has said that he was simply taking advantage of a technical loophole in the DAO, had amassed $50 million in ether, based on current exchange rates at the time. While the core developers who designed and run Ethereum didn’t really have anything to do with the DAO, they were left to deal with the mess, so they decided to hack the hacker.
They managed to stop the theft and move the funds into another smart contract where they currently sit: a temporary fix. The way the code of DAO was written, there is a question of whether the original hacker can still lay claim to the funds. Fixing this would require more intervention from the core developers.
Whether to do so has created an existential question for Ethereum. One of its underlying tenets is that it’s a decentralized platform, meaning the power lies almost exclusively with all of its users. By stepping in to fix this problem, it would completely undermine that objective. This has led to a heated debate between those who want to return the funds and others who say that the the power of smart contracts lies in their immutability.
Doing so would basically eliminate the DAO, and move all the money into a smart contract that can only reimburse investors. The initial proposal was a soft fork where a majority of the Ethereum miners could voting on the roll back. Unfortunately, a security flaw was found in the voting process, which eliminated this option.
That leaves a hard fork, where the core developers of Ethereum unilaterally make the decision to essentially create a new version of the network with different rules than the original. Then, miners, exchanges, and other major apps that are built on it need to decide if they want to a part of the new version of Ethereum or the original.