The Confederations Cup was originally held in Saudi Arabia from 1992. At that time it was known as the King Fahd Cup and was a smaller event. When Fifa started running the cup in 1997 it became known as the Fifa Confederations Cup, and until 2005 Fifa held a tournament every two years in different countries.
In 2005 fifa started to hold the Confederations Cup only every four years. It is now always held in the year before the World Cup, and the host country is the same country that is going to hold the World Cup in the following year; so it has become a real global event. In many ways the Cup is used a practice for the 'main event' the World Cup, though it is only about half the size and the matches are friendlies; but the host countries use it to gain experience in hosting big international events and get rid of any problems.
As the next World Cup will be held in Brazil in 2014, this year's Confederations Cup was also held there - you can learn more about it here.