The GMAT (Graduate Management Admission Test) is a 3-1/2 hour standardized exam designed to predict how test-takers will perform academically in MBA (Masters in Business Administration) programs. GMAT scores are used by graduate business schools to make admission decisions.

You might also see the GMAT referred to as the "GMAT CAT"; the acronym CAT stands for "Computer Adaptive Test." The GMAT is administered only by computer now, except in certain locations outside North America, where the test is referred to as the "paper-based" GMAT. (Since you’re reading this on the Web, no doubt the GMAT CAT is available where you are.)

The GMAT is the brainchild of the GMAC (Graduate Management Admission Council), which determines what kinds of skills the GMAT should measure — and how it should measure them. But it is ETS (Educational Testing Service) in Princeton, New Jersey that actually develops the test questions, administers the test, and reports test scores to the schools — all at the behest of GMAC.

In addition — especially after the initial screening of applicants — admissions officials consider subjective factors such as work and other relevant experience, recommendation letters, application essays (personal statements), and reports of personal interviewers. In making difficult decisions between two or more similarly qualified candidates, admissions officials rely less on GMAT scores and GPA and far more on these other, more subjective factors.   

Courtesy http://www.west.net/~stewart/gmat/gm101_1.htm