HEROBRINETRUTH

Canonical
Herobrine is Notch's dead brother, somehow embedded into Minecraft. While this is the "canon", this is also completely false in reality, as Notch has no brother.

Ghost aside, there are two plausible canon theories remaining.

Herobrine shows a lot of characteristics of being a form of virus, such as manipulating game worlds, deleting threads and sending messages through the Minecraft Forums. Perhaps also hacking into Notch's email and Twitter to reply on his own existence. Or, Herobrine is simply a figment of the users imagination. All users the user talked to, including Notch's email reply, could simply be the creation of the player's mind. This would also explain Notch's rejection of the canon, as showing the story is all in the user's head.

Herobrine is near-certainly inspired by Slenderman, who is also the inspiration behind Endermen.

Community
The most popular theories among users is that Herobrine is a ghost.

Other theories can involve him being a higher being, a demon, a bad omen, or the suggestions in the canonical explanation. However, most of these are written as if Minecraft itself is reality, rather than from the player controlling the avatar within the game.

Herobrine canonically has not appeared in real life, and remains confined to technology.