It is a set of Tests that Allow a Genin to Rank up to become a Chunin. The Test is in 3 parts.
The first stage tests their information gathering abilities and decision-making abilities (as well as their overall understanding of the ninja philosophy).
The second stage tests their abilities at accomplishing a mission and adhering to guidelines
The third consists of fights between those who passed the previous two stages, watched by a council of Daimyos that decides who becomes a Chunin and who does not.