Ghee is butter than has been gently melted, which separates the milk solids from the yellow liquid. Sometimes also known as clarified butter, ghee is actually clarified butter that has been simmered down to the point where the milk solids cook a bit, giving the butter a nutty brown hue, and a roasted flavor. Ghee has a much higher smoke point that regular butter, and it has a longer shelf life (can be refrigerated, covered for about 6 months, and frozen for up to a year.) Its high smoke point makes it ideal for sautéing and frying.
You can buy it at many Middle Eastern, Indian and gourmet markets, but you can also make your own, by gently melting unsalted butter in a clean pan, allowing the milk solids to settle to the bottom, then continuing to simmer, over low-flame, until the milk solids begin to color slightly. Then pour off the liquid into a clean jar or bowl, leaving the milk solids behind.