An urban legend or urban myth is a story that is widely believed to be true but which lacks evidence to support it. Typically there is some "kernel of truth" upon which the story is based, but the facts have been altered or exaggerated to such an extent that the story is not at all reliable.
Urban Legends are often told and retold for decades, either with details changed to keep up with the times or preserved in order to give the tale an air of historical accuracy.
There are three main kinds of urban legend: Horror, Comedy and "Glurge". Horror stories are the most common, and frequently the most well known. Many people, for example, have heard the tale of the Hook-handed killer, or the wife trapped in the chest. The goal of the horror tale is not merely to frighten but to induce paranoia.
Comedic urban legends frequently use absurd humour, starting with an ordinary person the audience can relate to and putting them in a ridiculous situation.
"Glurge" legends (the term being popularised by Snopes.com) are feel-good morality tales. If you have ever gotten a chain-email or letter that told a heartwarming story about a child finding Jesus or being healed by God or suchlike, it was glurge.