Ext3 is a third generation file system after the initial file system of Minix. Ext3 incorporates many useful features of modern file systems. Because Ext3 shares a lot of mature tools and code with the well established Ext2 (extension 2) file system, it is a very solid file system.
Amongst the most important features, Ext3 is a journaling file system, and it supports online resizing. Commpared to some other file systems, however, Ext3 has a file system maximum size of 16GB. This is suitable for desktop computers as well as smaller servers. However, Ext3 does not have the capacity to support a large server. Ext3 does not have any support of online defragmentation, altough most administrators agree that fragementation is not a problem due to preventive measures.
In many distributions, Ext3 is now (as of 2009) the default file system. Unless you are setting up a server that requires close to or more than 16GB, Ext3 is a good trade off between performance, capabilities and maturity.