What is this U3 that came with my new USB drive?

From the Wikipedia article on U3:

U3 is a company producing a proprietary method of auto-launching applications from specially formatted USB flash drives. Flash drives adhering to the U3 specification are termed "U3 smart drives". U3 smart drives come preinstalled with the U3 Launchpad, which looks similar to the Windows OS start menu and controls program installation. The method works with recent Microsoft Windows systems only. Applications which comply with U3 specifications are allowed to write files or registry information to the host computer, but they must remove this information when the flash drive is ejected. Customizations and settings are instead stored with the application on the flash drive.

I don't personally use the U3 software, but some less technologically-inclined people in my office appreciate having the file management built into their flash drive. You can also install portable applications onto the drive, but again, I find it easier to maintain my flash drives myself and use http://portableapps.com/.

I use U3 on a USB drive that I use for work to secure my employer's data. It works fine in this total Windows environment however, I've always wondered how adequate the security is.

I remove it from my personal USB drives I use for home and travelling, because I don't always use a computer running Windows.