YafRay (Yet Another Free Raytracer) is an open-source alternative rendering engine supported by Blender.
Reader note: in the new version of Blender (2.46) internal renderer of Blender got a lot of upgrades and is now about two times faster than YafRay, so this article may be considered obsolete.
Yafaray 0.1.1 provides 5 different material types independent of Blender. It is also able to show objects behind transparent materials unlike Blender 2.49b.
Further note: the Yafray project has been superseded by Yafaray. Yafray support was removed from Blender apparently around version 2.44. Use Yafaray instead. As of May, 2011, in MS Windows, it only works with 32-bit Blender 2.49b compiled with Python, with Python 2.6.6 32-bit version installed.
The YafRay render settings are normally hidden. To show them, switch from the Blender Internal rendering engine to the Yafray rendering engine.
- Go to the Scene Panel (Press F10)
- Click the Render Buttons button
- In the render tab, under the big Render button, click the Blender Internal button and select YafRay.
Now the YafRay and YafRay GI tabs appear.
Getting Started with YafrayEdit
First, I would like to state that Yafray renders 2-3 times faster and nicer (includes Global Illumination, Caustics and...) than the normal internal built-in renderer in Blender. So it would just be worth it to download and install it.
On Windows, just download the .zip file and unzip it. You get the .exe file. Run it and follow default instructions. Latest version is 0.1.0 as of October 2008. Now change the Environment variable by adding C:\Program Files\YafRay to your PATH or whichever folder you installed yafray.exe, users Windows 95/98/ME will need to restart where as WinXP users won't. Remember Yafray doesnt have a GUI and is a commmand line tool. Anyway you never need a GUI to run yafray as it runs nicely inside Blender as it is integrated into it. Go to the Command line and type yafray and press return. Now you have two paths
Reader: Can someone make this a little bit clearer? What is the Command line?
Answer: The command line interface (CLI) is an interpreter for the operating system that provides a way of getting around by accepting commands from the keyboard instead of using the mouse to click on icons. It was the primary method of using the computer in MS-DOS, the predecessor to Windows. There are no buttons like in programs such as Blender. 
You can access the command line in Windows by pressing Win-R then typing CMD and pressing the enter button. The command line can also be accessed by clicking on the Start menu, going down to "All Programs", over to the "Accessories" tab, and then clicking on the Command Prompt option. To change the environment variable, enter "path C:\Program Files\YafRay;%PATH%", without the quotes.
1) If there was an error regarding MSVCR71.dll, then download this file from the Web and place it in the c:\windows\system32 directory.
Reader: I have been using Blender for a while now, but due to my school's administrative limitations I am only able to use it on certain computers in school. For example, the computers that have already had 3d programs installed on them (like the ones in the Drafting and Design room) allow me to use Blender. Other computers give me an error message concerning MSVCR71.dll when I try to use it (specifically the ones in my Study Hall). Could you give me an alternate method of installing the .dll (maybe I can put it on a flash drive or in the My Documents folder)? Answer: Unfortunately, without administrative rights you will not be able to install a DLL. Answer 2: My school has the same type of administrative blocks, however I placed everything from my blender folder at home onto a flash drive, and now it works perfectly on all computers. Maybe try that?
2) Switch from the Blender Internal rendering engine to the Yafray rendering engine as explained and press F12 to Render. Wow, You should have noticed the lightning speed of Yafray.
- XML button: If pressed blender will export an xml file that describes the scene and will pass it to YafRay. If not pressed blender will render with the YafRay plugin. When using the plugin interface, the render in progress will update continuously in Blender's render window. This gives much faster feedback. It even shows the distribution of the samples taken by the path light when rendering with cached pathlight. YafRay divides the image into blocks and renders them in a random sequence.