Alignment

After all other steps toward creating a character have been completed, the player must choose an alignment for the character. In some cases (especially the paladin), the choice of alignment may be limited.
Unlike life, where there are many shades of gray, D&D works best when, as Monte Cook put it, alignments are hard and fast. Evil is evil and must be defeated by the forces of Good, and vice versa. This works best as a hard and fast rule, and makes the game easier to play.
The character's alignment is a guide to his basic moral and ethical attitudes toward others, society, good, evil, and the forces of the universe in general. Use the chosen alignment as a guide to provide a clearer idea of how the character will handle moral dilemmas. Always consider alignment as a tool, not a straitjacket that restricts the character. Although alignment defines general attitudes, it certainly doesn't prevent a character from changing his beliefs, acting irrationally, or behaving out of character.
Alignment is divided into two sets of attitudes: order and chaos, and good and evil. By combining the different variations within the two sets, nine distinct alignments are created. These nine alignments serve well to define the attitudes of most of the people in the world.

Law, Neutrality, and Chaos

Attitudes toward order and chaos are divided into three opposing beliefs. Picture these beliefs as the points of a triangle, all pulling away from each other. The three beliefs are law, chaos, and neutrality. One of these represents each character's ethos—his understanding of society and relationships.
Characters who believe in law maintain that order, organization, and society are important, indeed vital, forces of the universe. The relationships between people and governments exist naturally. Lawful philosophers maintain that this order is not created by man but is a natural law of the universe. Although man does not create orderly structures, it is his obligation to function within them, lest the fabric of everything crumble. For less philosophical types, lawfulness manifests itself in the belief that laws should be made and followed, if only to have understandable rules for society. People should not pursue personal vendettas, for example, but should present their claims to the proper authorities. Strength comes through unity of action. as can be seen in guilds, empires, and powerful churches.
Those espousing neutrality tend to take a more balanced view of things. They hold that for every force in the universe, there is an opposite force somewhere. Where there is lawfulness, there is also chaos; where there is neutrality, there is also partisanship. The same is true of good and evil, life and death. What is important is that all these forces remain in balance with each other. If one factor becomes ascendant over its opposite, the universe becomes unbalanced. If enough of these polarities go out of balance, the fabric of reality could pull itself apart. For example, if death became ascendant over life, the universe would become a barren wasteland.
Philosophers of neutrality not only presuppose the existence of opposites, but they also theorize that the universe would vanish should one opposite completely destroy the other (since nothing can exist without its opposite). Fortunately for these philosophers (and all sentient life), the universe seems to be efficient at regulating itself. Only when a powerful, unbalancing force appears (which almost never happens) need the defenders of neutrality become seriously concerned.
The believers in chaos hold that there is no preordained order or careful balance of forces in the universe. Instead they see the universe as a collection of things and events, some related to each other and others completely independent. They tend to hold that individual actions account for the differences in things and that events in one area do not alter the fabric of the universe halfway across the galaxy. Chaotic philosophers believe in the power of the individual over his own destiny and are fond of anarchistic nations. Being more pragmatic, non-philosophers recognize the function of society in protecting their individual rights. Chaotics can be hard to govern as a group, since they place their own needs and desires above those of society.

Good, Neutrality, and Evil

Like law and order, the second set of attitudes is also divided into three parts. These parts describe, more or less, a character's moral outlook; they are his internal guideposts to what is right or wrong.
Good characters are just that. They try to be honest, charitable, and forthright. People are not perfect, however, so few are good all the time. There are always occasional failings and weaknesses. A good person, however, worries about his errors and normally tries to correct any damage done.
Remember, however, that goodness has no absolute values. Although many things are commonly accepted as good (helping those in need, protecting the weak), different cultures impose their own interpretations on what is good and what is evil. Those with a neutral moral stance often refrain from passing judgment on anything. They do not classify people, things, or events as good or evil; what is, is. In some cases, this is because the creature lacks the capacity to make a moral judgment (animals fall into this category). Few normal creatures do anything for good or evil reasons. They kill because they are hungry or threatened. They sleep where they find shelter. They do not worry about the moral consequences of their actions—their actions are instinctive.
Evil is the antithesis of good and appears in many ways, some overt and others quite subtle. Only a few people of evil nature actively seek to cause harm or destruction. Most simply do not recognize that what they do is destructive or disruptive. People and things that obstruct the evil character's plans are mere hindrances that must be overcome. If someone is harmed in the process...well, that's too bad. Remember that evil, like good, is interpreted differently in different societies.

Alignment Combinations

Nine different alignments result from combining these two sets. Each alignment varies from all others, sometimes in broad, obvious ways, and sometimes in subtle ways. Each alignment is described in the following paragraphs.
Lawful Good: Characters of this alignment believe that an orderly, strong society with a well-organized government can work to make life better for the majority of the people. To ensure the quality of life, laws must be created and obeyed. When people respect the laws and try to help one another, society as a whole prospers. Therefore. lawful good characters strive for those things that will bring the greatest benefit to the most people and cause the least harm. An honest and hard-working serf, a kindly and wise king, or a stern but forthright minister of justice are all examples of lawful good people.
More information on Lawful Good.
Lawful Neutral: Order and organization are of paramount importance to characters of this alignment. They believe in a strong, well-ordered government, whether that government is a tyranny or benevolent democracy. The benefits of organization and regimentation outweigh any moral questions raised by their actions. An inquisitor determined to ferret out traitors at any cost or a soldier who never questions his orders are good examples of lawful neutral behavior.
More information on Lawful Neutral.
Lawful Evil: These characters believe in using society and its laws to benefit themselves. Structure and organization elevate those who deserve to rule as well as provide a clearly defined hierarchy between master and servant. To this end, lawful evil characters support laws and societies that protect their own concerns. If someone is hurt or suffers because of a law that benefits lawful evil characters, too bad. Lawful evil characters obey laws out of fear of punishment.
Because they may be forced to honor an unfavorable contract or oath they have made, lawful evil characters are usually very careful about giving their word. Once given. they break their word only if they can find a way to do it legally, within the laws of the society. An iron-fisted tyrant and a devious, greedy merchant are examples of lawful evil beings.
More information on Lawful Evil.
Neutral Good: These characters believe that a balance of forces is important, but that the concerns of law and chaos do not moderate the need for good. Since the universe is vast and contains many creatures striving for different goals, a determined pursuit of good will not upset the balance; it may even maintain it. If fostering good means supporting organized society, then that is what must be done. If good can only come about through the overthrow of existing social order, so be it. Social structure itself has no innate value to them. A baron who violates the orders of his king to destroy something he sees as evil is an example of a neutral good character.
More information on Neutral Good.
True Neutral: True neutral characters believe in the ultimate balance of forces, and they refuse to see actions as either good or evil. Since the majority of people in the world make judgments, true neutral characters are extremely rare. True neutrals do their best to avoid siding with the forces of either good or evil. law or chaos. It is their duty to see that all of these forces remain in balanced contention.
True neutral characters sometimes find themselves forced into rather peculiar alliances. To a great extent, they are compelled to side with the underdog in any given situation, sometimes even changing sides as the previous loser becomes the winner. A true neutral druid might join the local barony to put down a tribe of evil gnolls, only to drop out or switch sides when the gnolls were brought to the brink of destruction. He would seek to prevent either side from becoming too powerful. Clearly there are very few true neutral characters in the world.
More information on True Neutral.
Neutral Evil: Neutral evil characters are primarily concerned with themselves and their own advancement. They have no particular objection to working with others or, for that matter, going it on their own. Their only interest is in getting ahead. If there is a quick and easy way to gain a profit, whether it be legal, questionable, or obviously illegal, they take advantage of it. Although neutral evil characters do not have the every-man-for-himself attitude of chaotic characters, they have no qualms about betraying their friends and companions for personal gain. They typically base their allegiance on power and money, which makes them quite receptive to bribes. An unscrupulous mercenary, a common thief, and a double-crossing informer who betrays people to the authorities to protect and advance himself are typical examples of neutral evil characters.
More information on Neutral Evil.
Chaotic Good: Chaotic good characters are strong individualists marked by a streak of kindness and benevolence. They believe in all the virtues of goodness and right, but they have little use for laws and regulations. They have no use for people who "try to push folk around and tell them what to do." Their actions are guided by their own moral compass which, although good, may not always be in perfect agreement with the rest of society. A brave frontiersman forever moving on as settlers follow in his wake is an example of a chaotic good character.
More information on Chaotic Good.
Chaotic Neutral: Chaotic neutral characters believe that there is no order to anything, including their own actions. With this as a guiding principle, they tend to follow whatever whim strikes them at the moment. Good and evil are irrelevant when making a decision. Chaotic neutral characters are extremely difficult to deal with. Such characters have been known to cheerfully and for no apparent purpose gamble away everything they have on the roll of a single die.
They are almost totally unreliable. In fact, the only reliable thing about them is that they cannot be relied upon! This alignment is perhaps the most difficult to play. Lunatics and madmen tend toward chaotic neutral behavior.
More information on Chaotic Neutral.
Chaotic Evil: These characters are the bane of all that is good and organized. Chaotic evil characters are motivated by the desire for personal gain and pleasure. They see absolutely nothing wrong with taking whatever they want by whatever means possible. Laws and governments are the tools of weaklings unable to fend for themselves. The strong have the right to take what they want, and the weak are there to be exploited. When chaotic evil characters band together, they are not motivated by a desire to cooperate, but rather to oppose powerful enemies. Such a group can be held together only by a strong leader capable of bullying his underlings into obedience. Since leadership is based on raw power, a leader is likely to be replaced at the first sign of weakness by anyone who can take his position away from him by any method. Bloodthirsty buccaneers and monsters of low Intelligence are fine examples of chaotic evil personalities.
More information on Chaotic Evil.

Non-Aligned Creatures

In addition to the alignments above, some things—particularly unintelligent monsters (killer plants. etc.) and animals—never bother with moral and ethical concerns. For these creatures, alignment is simply not applicable. A dog, even a well-trained one, is neither good nor evil, lawful nor chaotic. It is simply a dog. For these creatures, alignment is always detected as neutral.

A Quick Word on True Neutrals & Neutrality in General

The Player's Handbook looks at alignments from the perspective of philosophy. Certainly, a lot of people believe that laws will help a society prosper as a whole, but there are also those who believe that the population as a whole propspers when the population is left alone and not told what to do.
Neutrality, however, doesn't fall easily into a philosophical category. Yes, there are those who believe in "The Balance", but the problem is that in most cases, these "neutrals" end up siding with the cause of Good and trying to prevent evil from rising.
A better way to look at neutrality, I believe, is the idea that neutrals judt don't care. They don't have a dog in the fight and don't want to get involved. Like chaotics, they want to be let alone, until something impacts them directly, then they will get involved.
Druids and other nature priests realize, as explained in the Druids section, that a certain ampount of hunting or logging is necessary for survival. However, if the world begins to get deforested, they may get militant. They may get involved, otherwise they don't care as long as the environment is taken care of.
A deer is killed and taken for the meat and skin. No problem. A unicorn is killed and the horn cut off by poachers, the Druids will get involved.
Otherwise, being neutral and not caring about politics, morals, or ethics is a very good way to play a neutral character.