Moore's Law is the empirical observation made in 1965 that the number of transistors on an integrated circuit for minimum component cost doubles every 24 months. a co-founder of Intel. Although it is sometimes quoted as every 18 months, Intel's official Moore's Law page, as well as an interview with Gordon Moore himself, states that it is every two years.

Earliest forms
Moore's law is not about just the density of transistors that can be achieved, but about the density of transistors at which the cost per transistor is the lowest[1]. As more transistors are made on a chip the cost to make each transistor reduces but the chance that the chip will not work due to a defect rises. If the rising cost of discarded non working chips is balanced against the reducing cost per transistor of larger chips, then as Moore observed in 1965 there is a number of transistors or complexity at which "a minimum cost" is achieved. He further observed that as transistors were made smaller through advances in photolithography this number would increase "a rate of roughly a factor of two per year".

Understanding Moore's Law
The most popular formulation is of the doubling of the number of transistors on integrated circuits every 18 months. At the end of the 1970s, Moore's Law became known as the limit for the number of transistors on the most complex chips. However, it is also common to cite Moore's Law to refer to the rapidly continuing advance in computing power per unit cost, because increase in transistor count is also a rough measure of computer processing power. On this basis, the power of computers per unit cost - or more colloquially, "bangs per buck" - doubles every 24 months (or, equivalently, increases 32-fold in 10 years).
A similar law (sometimes called Kryder's Law) has held for hard disk storage cost per unit of information. The rate of progression in disk storage over the past decades has actually sped up more than once, corresponding to the utilization of error correcting codes, the magnetoresistive effect and the giant magnetoresistive effect. The current rate of increase in hard drive capacity is roughly similar to the rate of increase in transistor count. However, recent trends show that this rate is dropping, and has not been met for the last three years.
Another version states that RAM storage capacity increases at the same rate as processing power.
Similarly, Barry Hendy of Kodak Australia has plotted the "pixels per dollar" as a basic measure of value for a digital camera, demonstrating the historical linearity (on a log scale) of this market and the opportunity to predict the future trend of digital camera price and resolution.
Due to the mathematical power of exponential growth (similar to the financial power of compound interest), seemingly minor fluctuations in the relative growth rates of CPU performance, RAM capacity, and disk space per dollar have caused the relative costs of these three fundamental computing resources to shift markedly over the years, which in turn has caused significant changes in programming styles. For many programming problems, the developer has to decide on numerous time-space tradeoffs, and throughout the history of computing these choices have been strongly influenced by the shifting relative costs of CPU cycles versus storage space.

Formulations of Moore's Law
Although Moore's Law was initially made in the form of an observation and forecast, the more widely it became accepted, the more it served as a goal for an entire industry. This drove both marketing and engineering departments of semiconductor manufacturers to focus enormous energy aiming for the specified increase in processing power that it was presumed one or more of their competitors would soon actually attain. In this regard, it can be viewed as a self-fulfilling prophecy.
The implications of Moore's Law for computer component suppliers are very significant. A typical major design project (such as an all-new CPU or hard drive) takes between two and five years to reach production-ready status. In consequence, component manufacturers face enormous timescale pressures—just a few weeks of delay in a major project can spell the difference between great success and massive losses, even bankruptcy. Expressed as "a doubling every 18 months", Moore's Law suggests the phenomenal progress of technology in recent years. Expressed on a shorter timescale, however, Moore's Law equates to an average performance improvement in the industry as a whole of close to 1% per week. For a manufacturer competing in the competitive CPU market, a new product that is expected to take three years to develop and is just three or four months late is 10 to 15% slower, bulkier, or lower in storage capacity than the directly competing products, and is usually unsellable. (If instead we accept that performance doubles every 24 months, rather than every 18 months, a 3 to 4 month delay would mean 8 to 11% less performance.)

An industry driver
As of Q1 2007, most PC processors are currently fabricated on a 65nm process, with some 90 nm chips still left in retail channels, mostly from AMD, as they are slightly behind Intel in transitioning away from 90 nm. On January 27, 2007, Intel demonstrated a working 45nm chip which they intend to begin mass-producing in late 2007. This new family of chips has been given the codename "Penryn".

The ability to control parasitic resistance and capacitance in transistors,
The ability to reduce resistance and capacitance in electrical interconnects,
The ability to maintain proper transistor electrostatics that allow the gate terminal to control the ON/OFF behavior,
Increasing effect of line edge roughness,
Dopant fluctuations,
System level power delivery,
Thermal design to effectively handle the dissipation of delivered power, and
Solve all these challenges with ever-reducing cost of manufacturing of the overall system. Future trends
Not all aspects of computing technology develop in capacities and speed according to Moore's Law. Random Access Memory (RAM) speeds and hard drive seek times improve at best a few percentage points each year. Since the capacity of RAM and hard drives is increasing much faster than is their access speed, intelligent use of their capacity becomes more and more important. It now makes sense in many cases to trade space for time, such as by precomputing indexes and storing them in ways that facilitate rapid access, at the cost of using more disk and memory space: space is getting cheaper relative to time.
Another, sometimes misunderstood, point is that exponentially improved hardware does not necessarily imply exponentially improved software to go with it. The productivity of software developers most assuredly does not increase exponentially with the improvement in hardware, but by most measures has increased only slowly and fitfully over the decades. Software tends to get larger and more complicated over time, and Wirth's law even states that "Software gets slower faster than hardware gets faster".
Moreover, there is popular misconception that the clock speed of a processor determines its speed, also known as the Megahertz Myth. This actually also depends on the number of instructions per tick which can be executed (as well as the complexity of each instruction, see MIPS, RISC and CISC), and so the clock speed can only be used for comparison between two identical circuits. Of course, other factors must be taken into consideration such as the bus size and speed of the peripherals. Therefore, most popular evaluations of "computer speed" are inherently biased, without an understanding of the underlying technology. This was especially true during the Pentium era when popular manufacturers played with public perceptions of speed, focusing on advertising the clock rate of new products..

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Intel (IA-32) CPU Speeds since 1994. Speed increases in recent years have seemed to slow down with regard to percentage increase per year (available in PDF or PNG format).