I am not a historian but an avid history enthusiast, so I hope my basic rundown is worthy of the posts here:

The thing we call Germany today was for most of its existence a collection of hundreds of minor duchies, kingdoms and electorates called the Holy Roman Empire. While there was an emperor who nominally held control over these realms, his actual authority was severely limited, and these states were effectively independent.

Then, in 1806, Napoleon, wanting friendly states on his eastern border that would provide him with resources for his military campaigns, disposed the Holy Roman Emperor and created the Confederation of the Rhine in its place, consolidated many of the smaller states into roughly 30 or so larger states in the process. This was somewhat more unified than its predecessor, however due to the fact it owed its existe

Following Napoleon's defeat at the Battle of Leipzig in 1813, the Confederation of the Rhine was dissolved and eventually replaced by the German Confederation (inventive naming, I know) as a result of the Congress of Vienna in 1815. This new German Confederation was a loose collection of the German realms, and although it did much to simplify trade and tariff laws between the member states, and created a common Federal Assembly of appointed representatives from each state, Germany would remain largely divided.

Then, throughout the mid-19th century, growing German nationalism meant that the idea of unification became ever-more popular, although the many attempts of popular unification ended in failure, due to a combination of in-fighting between member states, differing ideas on government, and sovereign resistance to the liberal ideas that many pro-unification supporters held meant. Underlying the debate of what a German state would look like was the question whether it would be a "Little Germany", (headed by the most militarily powerful state of Prussia, and excluding Austria, which was traditionally the largest and most influential German realm but included dozens of non-German minorities and lands) or a "Big Germany," (headed by Austria and possibly including her non-German possessions.)

This question defined German affairs for many decades, and came to a heated head in 1866, during the Austro-Prussian war, which broke out over a governing dispute surrounding the newly-acquired province of Schleswig-Holstein (which had incidentally been won from Denmark by an Austro-Prussian alliance only two years earlier.) Prussia's obvious military superiority allowed them to rapidly gain victory over Austria, and singled the end of Austria's hegemony over the German states.

After the war, Prussia annexed several of Austria's northern allies and a year later created the North German Confederation (there's that word again!), which was a Prussian-dominated, highly-centralized political federation of the north German states sharing a common parliament and constitution.

Finally, in 1870 war broke out between the North German Confederation and France in the Franco-Prussian war, which was started due to French anxieties about the possible succession of a Prussian prince to the throne of Spain (although both nations had been itching for war with the other for several years.) Germany's southern states, viewing France as the aggressor and swept with nationalist fervor, quickly joined the Prussian side. Again, Prussia's military ingenuity allowed her to win a humiliating victories over France, and, inspired by this display of power and sensing the national security that would go with union, the remaining independent German states opted to join into the unified German Empire (no more confederation!), proclaimed on the 18th of January 1871 (as the Siege of Paris was still underway) with the Prussian King as its Emperor.