Originally posted by: kami
The "One Ring" was created by Sauron in a plan devised to enslave all of the peoples of Middle-earth. In disguise, he convinced some of the Elves (Elves of Eregion to be exact) to help him make Rings of Power. He offered them great knowledge and power. They made 16 rings (7 for the Dwarves, 9 for Men). Sauron's plan all along was to control them with these rings, so he returned to Mordor (Mount Doom to be more exact) and made his own ring. He put his life force and power into this ring when he forged it and he was able to command the other rings of power (now in posession of the dwarves and men).
But his plan failed because the Elves had made their own rings too, and they were also very powerful. So when Sauron took up his One Ring, they sensed it and took off their own rings to escape this trap. When Sauron realized this, he got really pissed off and sent off his armies and destroyed the elves who had aided him in creating the rings of power. Sauron eventually recovered 15 of the original rings of power. The Elves hid their rings.
The Black Riders that you would've seen in the movie are the nine men who received the rings of power, and Sauron now commanded them so they became wraiths. Sauron also tried this on the Dwarves, but they were able to resist the Ring's power. The Men who escaped the downfall allied with the Elves and the War of the Last Alliance started (this is the big battle you saw at the very beginning of the movie). They defeated Sauron and took his ring, but Isildur kept it for himself until he was later ambushed by Orcs and then the Ring was lost for 2500 years....and I think you know the rest from the movie
So basically it's so powerful because Sauron himself is IN the Ring. It only makes hobbits invisible because they do not know how to wield it..and it will work differently for everyone who wears it. Gandalf for example could command supreme power from the Ring since he is a Wizard, but it would ultimately be his downfall.
Now I guess that brings up the question of why Sauron is so powerful, or where he came from, so I'll give you the brief rundown...
Sauron was originally a Maiar (the same race as Gandalf), but in the early days the Dark Lord Melkor seduced Sauron, and then Sauron became Melkor's most feared servant. After a long time, the Valar (you do NOT want me to try and delve into them) assaulted Melkor and took him away. Sauron escaped this assault and remained in Middle-earth, and then later on in the second age the whole thing with the rings of power begins.
Hope you could make some sense of that.