Aquavit isn't some fancy new flavored water. Derived from the Latin for "water of life" (just like whiskey means "water of life" in Gaelic), aquavit is a Scandinavian liquor that's becoming increasingly popular outside of Northern Europe, both on its own and in cocktails. Like vodka, aquavit is distilled from either grain or potato and then, like gin, it is flavored with spices and botanicals. So what distinguishes aquavit? Under European Union regulations, the predominant spice in aquavit has to be caraway or dill, and it must be at least 75 proof. Do you like rye bread? If you do (like me and Ms. Cocktail Den), you'll probably like aquavit.
Almost all aquavit currently on the market comes out of the Scandinavian countries -- Denmark, Sweden, and Norway. There are some general national differences in aquavit styles. Denmark and Sweden typically distill from grains, while Norway typically distills from potatoes. Aquavit can be relatively unaged and clear, e.g. Aalborg from Denmark, or aged and darker, e.g. Linie from Norway. As with other spirits such as rum and tequila, aging aquavit changes the flavor. Traditionally one drinks aquavit on its own. I had the opportunity to try different types when I was in Denmark and Sweden. I enjoyed a couple of types of chilled aquavit, and I found it goes great with herring (if you think that sounds disgusting, Ms. Cocktail Den agrees with you).
So why you should care about aquavit? Because it's a fascinating substitute for vodka, gin, and even whiskey in various cocktails. Depending on your perspective, to some extent aquavit (also spelled akavit) is like vodka or gin that's flavored with caraway or dill. Try switching aquavit in for another spirit and see what happens. Sköl!