Not long after the Prophet Muhammad founded the Muslim faith, he and his followers built a pretty large following in the Arabian peninsula. But when Muhammad died, the Islamic community came into conflict over who should lead their new faith, and there were basically two schools of thought: one said the caliph (roughly like the pope) should be drawn from among his peers, the other holy men of Islam (roughly like cardinals)--this group became the Sunni. The other group said that only members of Muhammad's family were worthy of leading the community--here come the Shia. All of this came to a head in 680 AD at the Battle of Karbalah (in modern Iraq). Muhammad's grandson Ali Hussein led a small group of Shia defenders against a much larger Sunni force; the battle became a massacre, and Hussein was executed along with all his defenders. To this day, Shia Muslims revere Hussein as a martyr and put him on a similar level as Christians view Jesus, though without the messianic connotations. This BBC article is several years old, but it has some good info as well.
This whole episode led to a schism that has persisted ever since, dividing Muslims into Shia and Sunni--blood has been spilled more than once, and it continues to happen in Iraq. When the British and French reapportioned the former Ottoman Empire after World War I, they paid no attention to ethnic and religious territorial lines. They pretty much drew random lines on a map to come up with the new countries, which they agreed to split 50/50 between their empires. This hodgepodge effect is a big reason that Middle Eastern politics are so complicated today. I hope that President Obama's appearance on al-Arabiyah will set the stage for improved relations with the Muslim world so that we can begin to construct a lasting peace and undo some of the mistakes of the past.