What is Bluetooth?
Bluetooth is an industrial specification for wireless personal area networks (PANs). Bluetooth provides a way to connect and exchange information between devices such as mobile phones, laptops, PCs, printers, digital cameras and video game consoles over a secure, globally unlicensed short-range radio frequency.

Who developed Bluetooth?
Developed originally by Ericsson the specification was adapted by the Bluetooth Special Interest Group (SIG) in 1999 as an open industrial standard for wireless PANs.
Bluetooth was named after a 10th century king, Harald Bluetooth King of Denmark and Norway.

How do Blutooth devices communicate?
A Bluetooth device playing the role of “Master” can connect and communicate with up to 7 devices playing the role of “Slave”. At any given time data can be transmitted between the Master and one Slave, however the Master can switch rapidly from Slave to Slave in a round-robin fashion. Several communication protocols have been standardized by SIG, the most commonly used for mobile phone applications being the Headset Profile (HSP) and the Hands Free Profile (HFP).
The HSP is the widely used protocol, enabling Bluetooth headsets to communicate with mobile phones. Normal controls include the ability to ring, answer a call, hang up and adjust the volume.
The HFP protocol is considered a Killer Application for Bluetooth (a program that is so useful that people will buy a particular device simply to run that program) and is the most widely used protocol to connect mobile phones with Bluetooth hands-free car kits, like EGO. It uses synchronous connection to transmit data.

Is Bluetooth secure?
Bluetooth implements authentication and key derivation with custom algorithms based on the SAFER+ block cipher. The initialization key and master key are generated with the E22 algorithm. The E0 stream cipher is used for encrypting packets. This makes eavesdropping on EGO hands-free car kits impossible.

How do Bluetooth devices know each other?
Pairs of devices may establish a trusted relationship by learning (by user input) a shared secret known as a passkey. A device that wants to communicate only with a trusted device can cryptographically authenticate the identity of the other device. Trusted devices may also encrypt the data that they exchange over the air so that no one can listen in. The encryption can, however, be turned off, and passkeys are stored on the device file system, not on the Bluetooth chip itself. Since the Bluetooth address is permanent, a pairing is preserved, even if the Bluetooth name is changed. Pairs can be deleted at any time by either device. Devices generally require pairing or prompt the owner before they allow a remote device to use any or most of their services.

More information about Bluetooth can be found on Wikipedia.