How to Read METAR Reports

The following is an example of a surface observation taken from O' Hare Airport:
METAR KORD 041656Z 19020G26KT 6SM -SHRA BKN070 12/08 A3016 RMK AO2

Heading Explanation
TYPE Type of Observation: METAR
METAR is a scheduled observation taken at the end of each hour.
SPECI is an observation taken at an unscheduled time due to certain criteria that is met, such as low visibility, low clouds, frozen precipitation, or thunderstorms.
ID Station ID: KORD
K indicates this is a North American Station
ORD is the three letter identifier for O'Hare Airport.
Other examples include KCMH (Columbus, OH), KAMA (Amarillo, TX) and KDEN (Denver, Co).
TIME Time and Date: 041656Z
04 represents the day of the month
1656 represents the time the observation went out
Z represents that the time is in ZULU
(also known as UTC "Universal Time Code" or GMT "Greenwich Meridian Time").
WIND: Current Winds: 19020G26KT
190 three digit wind direction.
20 is the wind speed.
G26 represents wind gusts. In this case the gusts are up to 26 knots.
KT means knots. It will always be at the end of this section.

Gusts won't always be present, because there is a set of criteria which must be met in order to qualify as a gust.

For winds speeds below 7 knots, you might see something like VRB005KT, which means the wind direction is variable (VRB) at 5 knots (005KT).

For winds greater than 6 knots you might see something like 18015KT 150V210, which means the winds are predominately from 180 degrees at 15 knots (18015KT), but the actual direction is variable from between 150 degrees and 210 degrees (150V210).
VIS Visibility: 6SM
6SM means 6 Statute Miles. Occasionally you might see visibility up to 20 or 30 SM, but for the most part it will go from <1/4 (vis below 1/4 SM) up to 10SM.
WX Present Weather and Obscurations: -SHRA
- is the designator for light. Precipitation will either be light -, moderate (no + or - sign), or heavy +, Simply stated, it is the intensity of the snow, rain, hail, sleet, or freezing rain.
SH means showers
RA means rain.

Thus, this example indicates that present weather is a "light rain shower".

Note of interest: BR means "Mist", better known as Baby Rain.
Additional modifiers can be viewed here.
The entire FMH1 HANDBOOK is linked at the bottom of this page.
SKY Sky Conditions: BKN070
BKN represents cloud coverage. (The clouds cover 5/8 to 7/8 of the sky)
070 indicates the base of the clouds are at 7,000 feet (simply add 2 zeroes to get the height).

The cloud coverage will be one of the following:
  FEW  -  Few clouds         (1/8 TO 2/8 sky covered)
  SCT  -  Scattered clouds  (3/8 TO 4/8 sky covered)
  BKN  -  Broken clouds     (5/8 TO 7/8 sky covered)
  OVC  -  Overcast             (8/8 sky covered)

You will often have more than one designator, like SCT035 BKN090 OVC140, which means Scattered at 3500, Broken at 9000, and Overcast at 14,000.

An indefinite ceiling, caused by fog, rain, snow, etc., will have the VV (Vertical Visibility) designator, which indicates how high you can see vertically into the ceiling.

Significant Clouds such as TCU (Towering Cumulus), CB (Cumulonimbus or a shower/thunderstorm), or ACC (Altocumulus Castellanus) will be found on the end of a category, such as SCT035TCU.
T/TD Temperature and Dewpoint: 12/08
12 represents the temperature in Celsius.
08 is the dewpoint in Celsius
If the temperature or dewpoint falls below 0 there will be an "M" before it (i.e., 03/M02). "M" means minus.
ALT Barometric Pressure: A3016
A simply stands for Altimeter
3016 means 30.16 inches of mercury for the pressure.
RMK Remarks: RMK AO2
RMK means REMARKS. It marks the end of the standard METAR observation and the beginning of the remarks that are included, as necessay.
A02 means the site is automated and has a precipitation sensor installed. If it read AO1, there would be no precipitation sensor available there. This doesn't mean the site is unmanned. If there is an AUTO after the ID in the observation, then there is no human observer on duty.

There are many remarks available here, and the Federal Meteorological Handbook-1 (FMH-1) can provide you with a full listing of them. However, here is a list of a few of the important and common remarks you might encounter.

Additional Links:
GlossaryNOAA Gloassary page
AbbreviationsNOAA list of abbreviations
FMH-1Here's the ultimate guide to METAR observations
from the National Weather Service
The Federal Meteorological Handbook No. 1