Arthropods are the largest of all animal phyla, with over a million described species, estimated at between 6 and 7 million total. Arthropods, whose name means "jointed feet," are characterized by a hard exoskeleton, segmented bodies, and an open circulatory system. The group includes insects, crustaceans, myriapods (millipedes and centipedes), chelicerates (arachnids and horseshoe crabs), and several extinct groups including trilobites. Arthropod phylogeny is an unsettled scientific topic, and opinions continue to change as new information comes in.
Arthropods are almost universally considered monophyletic, meaning they descended from a common ancestor rather than arising multiple times. This is in contrast to the predominant view during the 1970s. A 2001 study of arthropods places the group next to the tardigrades, a phyla of microscopic aquatic animals. Both are in turn related to the velvet worms, a group of sophisticated terrestrial worms with a fossil record stretching back to the Cambrian or before (~545 million years ago). Arthropods existed in the early Cambrian, about 530 million years ago, but it is a matter of debate as to whether they existed prior to this. Hard cuticles, like those universal among arthropods, only appear in the fossil record about 545 million years ago.
There are currently two primary theories as to the placement of arthropods within the Tree of Life. One puts arthropods alongside annelids (segmented worms), on the basis of their shared segmentation. A more recent analysis places arthropods alongside nematodes and several small phyla such as penis worms, on the basis of the shared feature of molting. This group is called "Ecdysozoa" after "ecdysis," meaning molting. Molting means that the animal grows by shedding its exoskeleton, then growing larger until a new exoskeleton hardens.
Our understanding of the relationship between arthropod groups is currently in a state of flux. One classification scheme from the 70s put arthropods into mandibulates, including myriapods, crustaceans, and hexapods (insects), with hexapods and myriapods being a common clade, Atelocerata, and the remainder of arthropods into Chelicerata. This classification scheme has been progressively rejected as newer studies point out that hexapods are actually nested within crustaceans (meaning the first land arthropods evolved from crustaceans, not myriapods), with myriapods and chelicerates actually being a sister group called Myriochelata. This is called the Pancrustacea hypothesis. These classifications are certain to be refined as more molecular and fossil data comes in.