Cognac is a type of Brandy, traditionally popular with royalty, statesmen, leaders, people with acquired taste in general and... well, hip-hop superstars too. It's a very specific type of Brandy, though. Most importantly, Cognac can only be produced in the Cognac region of France. It's produced by distilling wine from grapes called Ugni Blanc. This wine is very dry, acidic, and thin, but excellent for distillation and ageing.
After double distillation in a copper pot still, Cognac is aged in Limousine or Tronçais oak casks and usually blended before bottling.
There are six different wine-growing areas (called cru in French) authorised to produce Cognac; in descending order of prestige they are: Grande Champagne, Petite Champagne, Borderies, Fins Bois, Bons Bois and Bois Ordinaires. A blend of Grande and Petite Champagne Cognacs, with at least half coming from Grande Champagne, is known as Fine Champagne.
Depending on the age of the youngest Cognac in the blend, Cognac is categorized in three categories, defined by law: V.S., V.S.O.P., and X.O.