Why we do we say that Java is a compiled and interpreted language?
What is the advantage of this (being compiled and interpreted)?
Java is compiled to an intermediate "byte code" at compilation time. This is in contrast to a language like C that is compiled to machine language at compilation time. The Java byte code cannot be directly executed on hardware the way that compiled C code can. Instead the byte code must be interpreted by the JVM (Java Virtual Machine) at runtime in order to be executed. The primary drawback of a language like C is that when it is compiled, that binary file will only work on one particular architecture (e.g. x86).
Interpreted languages like PHP are effectively system independent and rely on a system and architecture specific interpreter. This leads to much greater portability (the same PHP scripts work on Windows machines and Linux machines, etc.). However, this interpretation leads to a significant performance decrease. High-level languages like PHP require more time to interpret than machine-specific instructions that can be executed by the hardware.
Java seeks to find a compromise between a purely compiled language (with no portability) and a purely interpreted language (that is significantly slower). It accomplishes this by compiling the code into a form that is closer to machine language (actually, Java byte code is a machine language, simply for the Java Virtual Machine), but can still be easily transported between architectures. Because Java still requires a software layer for execution (the JVM) it is an interpreted language. However, the interpreter (the JVM) operates on an intermediate form known as byte code rather than on the raw source files. This byte code is generated at compile time by the Java compiler. Therefore, Java is also a compiled language. By operating this way, Java gets some of the benefits of compiled languages, while also getting some of the benefits of interpreted languages. However, it also inherits some limitations from both of these languages.
As Bozho points out, there are some strategies for increasing the performance of Java code (and other byte code languages like .Net) through the use of Just in Time (JIT) compilation. The actual process varies from implementation to implementation based on the requirements, but the end-result is that the original code is compiled into byte code at compile time, but then it is run through a compiler at runtime before it is executed. By doing this, the code can be executed at near-native speeds. Some platforms (I believe .Net does this) save the result of the JIT compilation, replacing the byte code. By doing this, all future executions of the program will execute as though the program was natively compiled from the beginning.