Shadow Clone Technique

Similar to the Clone Technique, this technique creates clones of the user. However, these clones are actual copies, not illusions. The user's chakra is evenly distributed among every clone, giving each clone an equal fraction of the user's overall power. The clones are capable of performing techniques on their own and can even bleed, but will usually disperse after one or two solid blows. They can also disperse on their own. The clones will be created in roughly the same condition as the original.

Shadow clones can't be distinguished from the actual person even by the Byakugan because the clones have the exact same amount of chakra and aren't made from any other substance.

Uses
A characteristic that is unique to the Shadow Clone Technique is that any experience the clones gain during their existence is transferred to the user once they are dispersed. This makes the technique ideal for spying, since the user can simply send a clone to spy on a target, then have the clone disperse itself without returning to pass the information back to the user.

It's also useful for training purposes, since the total amount of experience the user gains is multiplied by the total number of clones being used to train. For example, if a user creates one shadow clone and trains together with this clone for one hour, then dispels the clone, the user gains two hours of training in one hour by adding the hours of clone and the user together. This particular feature is not revealed until Part II by Kakashi Hatake. When done with several hundred, like Naruto does, training that could take weeks or months can be completed in a few hours. While the technique can be extremely beneficial, attempting to use multiple clones for training purposes can be mentally harmful to the user, as not only is all the experience collected by the user, but so is all the mental stress from training each clone.

Naruto also uses shadow clones in order to counter the limit of Sage Mode, the need to stay still on a battlefield to gather more senjutsu chakra, as well as the inability of the Two Great Sage Toads to merge with him due to the presence of the Nine-Tailed Demon Fox inside him. By infusing his shadow clones with senjutsu chakra and leaving them at Mount Myōboku, Naruto can recall them to him on the battlefield and dispel the technique causing the chakra they have stored up to return to the original body.

Disadvantages
Because of the manner in which the clones are created, the user must divide their chakra among the clones, potentially using up all their chakra fairly quickly if the user is low on chakra or makes too many clones. This is especially problematic when the forbidden form of the technique, Multiple Shadow Clone Technique, is used; whereas the normal version will only create a few clones, the Multiple Shadow Clone Technique can create hundreds.

Naruto is able to use this technique to the extremes that he does because of the Nine-Tailed Demon Fox sealed within him, which gives him an abnormally high chakra level. Even without the Nine-Tails' chakra, Naruto can make quite a few clones, but nowhere near on the level he can when he has access to the Nine-Tails' chakra. The clones, however, are apparently more susceptible to the Nine-Tails' influence and can begin to transform unexpectedly. It should also be noted that while Naruto in his two-tails form in his fight with Deidara, the other clones seemed to be choking and dying as if the Nine-Tails' chakra was killing them. If Naruto creates any clones while in his Nine-Tails Chakra Mode, the Nine-Tails will absorb a portion of his chakra per clone, making it very easy for Naruto to die.

Trivia

 * Twice in the anime, Naruto produced shadow clones using the tiger seal.
 * In an episode of the Naruto anime, Sasuke Uchiha claims that the Sharingan can distinguish clones from the original. This contradicts the manga and other anime episodes.
 * An ostrich named Condor appears in the anime using Shadow Clone, but in reality it was just more ostriches.