People take the test for different reasons. The first reason is if you are planning to work in Japan. Any position in Japan that requires you to have the ability to read and write or deal with customers will ask you for your JLPT certification. A friend of mine was refused a job in Japan as a removalist, as he didn't have a JLPT certificate, with the reason that he may have to speak a few words to a customer as he was moving furniture. The second reason to take the JLPT is if you are planning on doing further study at a Japanese university or college at undergraduate or graduate level. Most universities will ask for your JLPT level 1 certificate to approve your application.
The JLPT has recently changed, but originally it had four levels. The 4th level was very basic and a beginner level. The 1st level was the most difficult and you needed to pass this if you were considering working in Japan or going to school there. From this year, the test has changed and there is now an additional level. Starting from 2010, there are 5 levels in the test. The reason for the additional level was that there was a huge jump in the difficulty level from level 3 to level 2. The new levels are N1 to N5, where N3 is the level that has been added between the old level 2 and level 3.
There are three sections to the test. The areas that are tested are listening, reading and vocabulary. Each level has a different amount of time allocated to each section. In general the reading / grammar section is the section that is allocated the most time. The hardest parts of the test are the kanji and listening sections. The number of characters that you are required to know, varies from level to level. The old level 4 required you to know a manageable 100 characters whereas level 1 required around 2000 kanji. The number of words that could be included in the test rose from around 800 in level 4 to 10,000 in level 1.
The most difficult part of the test is usually listening. The difficulty many people have is that they are not used to comprehending everyday conversations. The test moves from question to question without pausing too long, so you need to be able to understand quickly. The listening is actually prerecorded conversations that you must answer questions on and you are not able to stop the recording.