INIT is the very very very first thing that starts. The kernel loads itself up, does all its initialization tasks ( just getting the kernel loaded and running).
Then, the kernel runs INIT. And then INIT does everything else: starting up scripts, to mount drives, and start services, and X, and terminal login programs, and whatever else you want. but INIT runs it all - it is the first program to run (and usually the last one before you shut down).
You can read more about it at the linux documentation project's howto on system administration:
...it's really good stuff to know.