VLANs are used to break large campus networks into smaller pieces. The benefit of this is to minimize the amount of broadcast traffic on a logical segment. 

VLAN 

A virtual LAN (VLAN) is a logical LAN, or a logical subnet. It defines a broadcast domain. A physical subnet is a group of devices that shares the same physical wire. A logical subnet is a group of switch ports assigned to the same VLAN, regardless of their physical location in a switched network. VLAN membership can be assigned either statically by port, or dynamically by MAC address or username. 

Two types of VLANs Are

End‐to‐end VLAN: VLAN members reside on different switches throughout the network. They are used when hosts are assigned to VLANs for policy reasons, rather than physical location. This provides users a consistent policy and access to resources regardless of their location. It also makes troubleshooting more complex because so many switches can carry traffic for a specific VLAN, and broadcasts can traverse many switches 

Local VLAN: Hosts are assigned to VLANs based on their location, such as a floor in a building. This design is more scalable and easier to troubleshoot because the traffic flow is more deterministic. It enables more redundancy and minimizes failure domains. It does require a routing function to share resources between VLANs. 

Create and Delete a VLAN 

VLANs must be created before they can be used. Creating VLANs is easy— in global configuration mode just identify the VLAN number and optionally name it! 

e.g. 

(config)# vlan 12 

(config‐vlan)# name MYVLAN

Delete a VLAN by using the same command with no in front of it. There is no need to include the name when deleting.

References:

http://www.dummies.com/how-to/content/virtual-local-area-network-vlan-basics.html

http://en.wikipedia.org/wiki/Virtual_LAN