Cyanobacteria, or 'blue-green algae', differ from other types of algae in important ways. They are fundamentally unique in being Bacteria: they lack membrane-bound organelles such as chloroplasts, nuclei, and mitochondria that are found in Eucarya.
Their genomes are much smaller, and they generally (though not always) have less structural complexity and cellular specialisation than Eucarya. Different species exist as unicells, filaments, and colonies. Filamentous and colonial forms may be visible to the naked eye. The general public are most familiar with cyanobacteria in the form of toxic blooms in lakes. However, such outgrowths are anomalies: the cyanobacteria are generally innocuous, often beautiful, of high ecological importance, and surprisingly diverse.
Cyanobacteria have the ability to photosynthesise oxygenically (they use CO2, water and light energy to synthesise their own sugars, releasing oxygen). Although they are not the only Bacteria that photosynthesise, this particular type of photosynthesis is unique among Bacteria, and is the same process used by plants. Plants carry out photosynthesis in intracellular structures called chloroplasts. A chloroplast has its own bacteria-like genome; this and several other lines of evidence show that cyanobacteria and chloroplasts share a common free-living ancestor. Another term for photosynthesis is 'carbon fixation'; those species that obtain their carbon this way are termed 'autotrophs'.
Like many Bacteria, cyanobacteria are often capable of nitrogen fixation (which is strictly a bacterial invention, and one of the many ways in which we depend upon bacteria for survival). That is, they can fix atmospheric nitrogen for incorporation into organic molecules. These molecules can then be transferred through the food chain, just like carbon that is fixed by photosynthesis. Most heterotrophic species obtain such fixed carbon and nitrogen rather opportunistically – simply by eating whatever suitable members of a lower trophic level – or their excretions – they can find. However, some heterotrophs, such as lichen fungi, exploit cyanobacteria in a much more specialised way. In some lichens, carbon and nitrogen are fixed by cyanobacteria in exchange for water and nutrients provided by the fungus. Some of these fungi even associate with several different types of algae, and house the nitrogen-fixing cyanobacteria in special structures called cephalodia.