The Star Wars universe is pretty huge. From the original 1977 film was spawned 2 sequels, 3 prequels, countless books and comics, TV shows, video games, collectible card games, toys and loads of other things that continued to expand the setting. Star Wars: The Old Republic fits in there, too - it is part of the official universe and has added new elements and history to the continuity.
Of course, all these new additions came from the minds of a legion of different authors, and occasionally these different visions contradicted one another, creating conflicts in the universe's continuity. This can pose a problem for writers seeking to add yet more to the expanding universe, as well as for some of us detail-obsessed fanboys who want to have "official" answers for any given question. For example, consider the dent in Boba Fett's helmet.
In 1999, a series of comic books called "Boba Fett: Enemy of the Empire," detailed a scuffle between Darth Vader and Boba Fett, which resulted in the crater-like dent above Fett's left brow. Three years later, Episode II: Attack of the Clones is released, and we see an alternate explanation: Jango Fett's helmet is damaged in a similar spot, and Boba is seen picking it up - presumably he carefully extricated his father's head from the thing and used it himself.
So now we have two conflicting sources. Both sources bear the LucasArts seal, making them both "official." It is for situations like these that we need a clear definition of what takes precedence over contradictory material.
In 2000, a Lucasfilm employee named Leland Chee was tasked with creating an official Star Wars continuity database, called the Holocron. He came up with a system for stratifying all the stories and data into different "levels" of canon. Basically, anything with a Lucas stamp (LucasArts, LucasFilm, Lucas Books, etc) is considered "canon" to some extent, but the degree to which it accurately reflects the continuity of the Star Wars universe depends on how far removed it is from George Lucas.
Basically, low-level canon has lower precedence than higher-level canon. For example, if an event occurs in an Expanded Universe book that was later directly contradicted in a Clone Wars episode, the Clone Wars version takes precedence because it is a higher level of canon. However, if the Clone Wars version contradicts something from one of the movie screenplays, the screenplay version is canon.
G-canon - This is the top level of canon, the absolute gospel. This level consists of material that comes directly from George Lucas himself, including statements made in interviews. The order of precedence is usually as follows:
T-canon - This level consists of the television shows. Currently, this includes only the Clone Wars animated series, which is Executive Produced by George Lucas.
C-canon - Most of the novels and comics of the Expanded Universe fits in here. This level also consists of some elements of video and roleplaying games - the stories and history are considered C-canon, but elements like character stats and gameplay mechanics are not (see N-canon). Essentially, all it takes to make something C-canon is for that thing to be referenced, and not contradicted, in another licensed work. This is how green space-rabbits become canon.
S-canon - This material exists outside the continuity of the Star Wars universe, but the non-contradictory elements are considered canon. For example, the setting of Star Wars Galaxies existed outside the continuity of the canonical universe, but some of the ships, items and historical figures are considered canon. Also includes a lot of the Marvel comics written before Lucasfilm made an effort to maintain continuity.
N-canon - This material exists outside the continuity and is not canon. This category includes a great deal of material that was published between 1983 and 1999, which was directly contradicted by the prequel trilogy. It also includes crossover video game appearances, "What-if" stories, and abstract statistics and mechanics for video and roleplaying games.
It is important to note that a given work can contain elements of different canonicity. For example, roleplaying games can contain C-canon storylines (e.g. Revan from Knights of the Old Republic), but present them in N-canon ways (e.g. the option of playing Revan as a female).
There have been a few instances where lower-level canon has become G-canon:
SWTOR contains elements of different canon levels. The historic setting, important NPCs and class and planetary storylines are C-canon, but the actual player characters and all of the game mechanics are N-canon. This is an inherent complication with the MMO aspect of the game - while the storyline itself may be considered canonical in terms of universe continuity, the actual progression is subject to variables that sort of "deform" its canonicity - Light/Dark Side decisions, for example.
The "canon" version of a class storyline assumes a particular dominant alignment choice (Light Side for Republic characters, Dark Side for Empire characters), but is mostly gender- and species-neutral, and treats the character's name, level and advanced class as irrelevant. For example, "The Jedi Knight conquered the powerful enemy on Tython..." instead of "Goose-grease Butterface the Level 9 Female Miraluka Jedi Sentinel conquered the powerful enemy on Tython..." Another example: there can't possibly be thousands and thousands of Havoc Squads. That story happens only once in overall continuity, and the events that happen in it are C-canon. Your Trooper, however, is not a canon character (N-canon) - "The Trooper" is C-canon, but "Party Time Coolguy of the Trololol Legacy, the Level 50 Human Male Vanguard" is not.
BioWare has a great deal of liberty with their Old Republic setting. While a few authors have delved into the deep past of the Star Wars universe, BioWare set the tone for the period spanning about 4,000 - 3,500 years before the era of the movies when they made the first Knights of the Old Republic. Revan and his related works are C-canon, and exist in a perfect mid-way timeframe - enough stuff has already happened in the past (the founding of the original Galactic Republic, the formation of the Jedi Order, the rise and fall of the Dark Lords of the Sith) that it gives them license for some pretty amazing storytelling, and the events of the movies are far enough in the future that there is little risk of setting up weird paradoxes and contradictions with later events.
Anything you wish was/wasn't considered canon? Let us know in our comments!