It is a massive space station constructed millennia ago by an unknown race in the heart of the Serpent Nebula. Heavily populated with diplomats and traders, it serves as the home of the Citadel Council, a powerful multi-species governing body. It is believed, though historically unconfirmed, that the Citadel was constructed by the long-extinct Protheans.
The Citadel is believed by its current occupants to be a space station constructed by the Protheans, who for some reason mysteriously vanished Fifty-Thousand years ago. However, it is revealed in the later stages of the game that the Protheans did not create the Citadel; they discovered it. Indeed, both the Citadel and the Mass Relay network (which the Citadel is the 'hub' of) were built by the Reapers (a race of sentient machines that wiped out the Protheans). The Reapers created the Citadel and Mass Relay Network as a trap. In short, the mass relays would force civilization to develop along the lines and in the places the Reapers wished it to. The Citadel would take a central role in galactic civilization.
The Citadel itself is actually a large Mass Relay that leads to "Dark Space" (an area outside the Galaxy where the Reapers exist). Activating it will allow the Reapers to enter the Galaxy, right at the core of spacefaring civilization, allowing them to destroy the Citadel Council and halt all interstellar travel, then commence the genocide of all spacefaring species, system by system (and led to all the relevant systems simply by following the Mass Relay Network). The last remaining Protheans (after most were wiped out by the Reapers) researched the technology behind Mass Relays in a secret facility on a planet called Ilos and used their new knowledge to create a small one (referred to as the 'Conduit') after the Reapers left. They used it to gain access to the Citadel from Ilos and altered the keepers (made or enslaved by the Reapers, the game is vague at this point, to start the Citadel Relay) so that they would ignore the signal sent by Sovereign, the only reaper left behind to monitor the races of the galaxy. This meant that Sovereign would be unable to remotely activate the Citadel's mass relay, effectively preventing the main Reaper force from invading.
The final mission of Mass Effect sees Saren using the Conduit to gain access to the Citadel. Since the Keepers were not responding to Sovereign's remote signal, the only way to activate the Citadel's mass relay was to gain direct access to the Citadel's systems. Saren positioned himself at a control panel in the Council chambers, while Sovereign charged through the Council's defensive fleet, and as Sovereign entered the Citadel, Saren closed the ward arms, sealing it inside. Sovereign then landed on the Council tower and began to directly interface with Citadel systems, in an attempt to manually activate the mass relay and bring the Reapers through. Commander Shepard, though, was able to defeat Saren and reopen the Citadel arms, exposing Sovereign to attack from the Alliance fleet and interrupting its efforts. Sovereign then used its power to re-animate the corpse of Saren in an attempt to defeat Shepard, and simultaneously engaged the attacking fleet. The battle was going poorly until Shepard destroyed Sovereign's avatar Saren for the second time, which (by some mechanism that is not explained) crippled Sovereign's shields and allowed the Alliance fleet to destroy it.
During the attack, the player can choose whether or not to order the Normandy, presently leading the Alliance fleet, to save the Council, whose ship is under severe bombardment. (Having the Normandy save the Council results in humanity gaining a Council seat. Having the Normandy and the human fleet abandon the Council results in humanity moving into the resulting power vacuum and declaring an Empire.)
The Citadel is a massive construct, and is shaped like a five-pointed star. It consists of a central ring 10 kilometers in diameter, ringed by five arms, each of which is 25 km long and five km in breadth. The station is capable of closing in on itself, transforming into a long, cylindrical tube as the five arms come together. This is only done for defensive purposes, however, and normally the station retains its star-shaped layout.
The central ring itself contains the Presidium, a massive, park-like complex containing the offices of the various branches of the galactic government, as well as the embassies of all the races represented in the Citadel.
Each of the five arms contains one of the Wards, self-contained cities that have been built into the station. Each of the Wards contains multiple housing and recreational establishments to support the station's massive population of 40 million, made up of members of almost every known species in the galaxy.
Like most fictional megastructures, the structural load on various parts of the Citadel, especially the 'hinges' where the arms join the central ring, would exceed the properties of any known material by many orders of magnitude. It is possible that the eponymous 'mass effect' is used to reduce the stresses on the structure.
As befits such an important location, the Citadel boasts multiple forms of defense. The station itself, as previously noted, is capable of closing in on itself to form a long, armored cylinder 25 kilometers in length. The station's hull is strong enough that, even using the most advanced weaponry available, it would take several days of sustained bombardment to inflict any serious damage to the station.
The next link in the Citadel's defensive chain is the Citadel Fleet. The fleet is a massive task force consisting of vessels from the militaries of the members of the Citadel Council (the Asari, the Salarians, and the Turians). The Citadel Fleet also has alliances with other major military powers, such as the Systems Alliance, to call upon in times of need. The Citadel Fleet, led by the imposing Asari Dreadnought Destiny Ascension, constantly patrols the space around the station. Should any aggressor manage to break through the Citadel Fleet, reinforcements from all over the galaxy are only minutes away, thanks to the network of mass relays located nearby.
In addition, the Serpent nebula itself also constitutes a form of defense. The nebula's composition makes it difficult for attacking fleets to navigate, thus preventing them from launching a cohesive attack. The station also boasts its own security force, known as C-Sec.