(excerpt from the book Stephen Johnson on Digital Photography unreleased revised electronic version)
Chromatic Aberration is the failure of a lens to be able to focus different wavelengths of light at the same place in space on the sensor or film. Red, green and blue look different because they are different energy levels, different wavelengths and literally produce different sized images on the focal plane. A lens can only focus in one place at a time and most of our focusing systems are designed to focus on green, the middle energy wavelength between the red and blue. This inevitably leaves both red and blue slightly out of focus while rendering the green the sharpest.
Modern lenses are designed to try to compensate for this problem by special optical designs and lens coatings. A very low Chromatic Aberration lens is called apo-chromatic, but can still suffer from the problem. Wide-angles tend to have the worst Chromatic Aberration.
This problem can be seen as colored rings around detail, particularly at the edges of an image. In the days of film, there was really no way to post-treat this problem. Modern RAW processors have a color plane re-alignment tool in Lens Correction that is feathered in from center of the image designed to line up these mis-registered color planes and reduce or eliminate the problem.
The RAW Lens Correction tools should always be used to correct this problem. It has normally been done manually by adjusting Red/Cyan Fringe or Blue/Yellow Fringe sliders.
In Hasselblad, Nikon and Canon dedicated software auto-chromatic aberration has been built-in for awhile, and now Photoshop CS5's Camera RAW and Lightroom 3 have this auto Chromatic Aberration built-in as well. The process involves checking the menus for your lens, selecting it, and inspecting the aligned results which happen automatically. If your lens is not on the list, there is a Adobe Lens Profile Creator utility from Adobe that can be downloaded to produce a correction table for your lens. These lens correction tables also correct for field distortion introduced by the optic.
Red/Cyan Fringe Corrected