Active directory is a centralized database on the Windows Server computers and it provides the authentication, authorization and stores the information about the networks and servers in its database. It is also known as AD and it performs several functions in the Windows domain environment like it provides the easy management to your Windows domain, organize objects and computes, user management, user authentication, backup and restore and network management.
It also deals with the replication and trust monitoring, scalability, easy systems administration and the powerful deployment environment. AD’s structure is the hierarchical framework of the objects. The AD’s objects includes resource (printer, computer), services (email, replication), and the users (user accounts and the groups). In AD each object represents a single identity.  The objects are held into a container, which is known as organization unit.  Organization units provide the hierarchical structure to the domain for easy management. 
AD’s structure is the hierarchical framework of the objects. The AD’s objects includes resource (printer, computer), services (email, replication), and the users (user accounts and the groups). In AD each object represents a single identity.  The objects are held into a container, which is known as organization unit.  Organization units provide the hierarchical structure to the domain for easy management. 
For the ease of management the group policies in the domain are applied at the organizational unit level although they can also be applied at the domain and sites level. The active directory information is held on the computer “Domain Controller” or DC.  In a domain there can be different domain controller computers and when a domain controller is updated with some changes, these changes synchronized (converged) with all the domain controllers in the domain.  DNS or Domain name system and TCP/IP is required for the AD to be fully functional.
How to Install Active Directory on Windows Server 2003
Active directory can be installed on every Windows Server 2000/2003/2008 computers.
Requirements
- Windows      Server 2000/2003/2008 computer with NTFS partition having at least 1 GB of      free disk space.
- Fully      functional and configured LAN card.
- A      network connection to the hub/switch from the LAN card through UTP/STP      cable.
- Windows      Server 2000/2003/2008 CD.
- Administrator’s      user id and password.
Before installing AD, you need to configure the TCP/IP settings and provide the unique computer name.
- Click      start > run and type DCPROMO
- A      wizard will start click next.
- Choose      the domain controller for the new domain and click next.
- Choose      new domain to be created in the Forest and click next.
- Enter      the full DNS name of the new domain and click next.
- Accept      the NETBIOS domain name and click next.
- On      the next step, accept the database and log file location.  %systemroot%\NTDS is the default      location and it should not be changed.
- Accept      the Sysvol folder location this %systemroot%\SYSVOL      is the default location and it should not be changed.
- If      your DNS is not previously configured and install then you should      select"Install and configure the DNS server and click next.
- Enter      the Active directory Restore mode password.  You can change this      password by using this command NTDSUTIL at the command prompt.
- Review      your settings and click next.
- The      wizard will start working and it will take few minutes to complete the      installation.  Never click cancel or next during the installation. 
- When      the AD is successfully installed on your computer you will be prompted to      restart your computer.
- You’r Done.