IMPORTANT UPDATE: FinCEN, a money laundering enforcement arm of the U.S. Department of Treasury, has issued guidance on using bitcoins. Please see link below for more information. Essentially, this says bitcoins are legal to use in the U.S by individuals and companies. While some usage is subject to regulation, exchanging bitcoins for goods and services directly is not.
Disclaimer: this is not legal advice
FinCEN addresses Bitcoin March 18, 2013
Bitcoins are currently in a legal gray area. They are undefined. Bitcoins are not technically money even if some people use them that way. Bitcoins are simply digital information. It may not even be possible to make bitcoins illegal without making unrelated technical actions illegal as well.
As Bitcoin gains popularity some governments may begin to look at how to apply laws to it. There is speculation about how that might play out, but the political climate may play a role.
One thing in Bitcoin's favor is that it's global although jurisdiction of governments is limited. Making it illegal one place wouldn't automatically make it illegal globally. Jurisdiction may also be relevant within countries. For example, gambling is widely illegal in the United States, but some states, like Nevada, regulate it and gambling absolutely thrives in Las Vegas. So far there hasn't been any attempt to make Bitcoin illegal. If anything, the opposite is true. A prominent member of the central bank in Finland has said bitcoins are absolutely legal. In France a Bitcoin business has successfully integrated some operations with a bank.
There is an entire legal section at the Bitcoin forum.