Kerning and tracking are often confused, as they both control horizontal spacing between characters. By kerning your type, you are adjusting the amount of space between two characters without affecting the rest of the text. Kerning is most effective when the letters in a word form a void, appearing as a gap. By drawing the two letters closer together, or kerning, the word becomes a visual unit.
In the early days of printing, type characters were carved from metal and mounted on wooden blocks. To kern type, they had to saw away part of the wooden blocks so letters could fit closer together. Because of the time it took, most early letterpress work only has kerning on the larger headlines.
Today kerning is easy to do, but graphics professionals are the primary industry with concern for the artistry of well-kerned type. Most consumer software, such as Microsoft Word, does not offer manual control of kerning.
Tracking allows changes in the space between all characters in a body of text. For example, if you want all the letters to squeeze together, you would tighten the tracking. Or, to spread the line so it appears there is a word space between each letter, you would loosen the tracking. The rule of thumb is to tighten tracking as type gets larger in size.