Classical Chinese (wenyan 文言 or gudai Hanyu 古代漢語 "old Chinese") is the written language that took form during the late Warring States period 戰國 (5th cent.-221 BCE) and was in use as a written language to the beginning of the 20th century. Many traces of the classical language can still be seen in modern written Chinese.
The written Classical Chinese already showed differences to the everyday spoken language during the 4th and 5th centuries. The influence of the vernacular language changed the originary classical style of Chinese in both lexicon and in grammar. It was especially the vernacular language of northern China that had an impact on the written classic language. Yet as a standard written language (shumianyu 書面語) it remained relatively unchanged until 1919.
The unadorned, "plain" language of the people was called baihua 白話, or simply kouyu 口語 "spoken language". In 1919 the literary revolution of the May Fourth Movement 五四運動 brought an end to the use of Classical Chinese as the only written form of language. The difference of a two thousand years old language to modern Chinese (xiandai Hanyu 現代漢語) is of course very great, inspite of the steady change of the classical written language by the influence of the spoken language.
The written language of the Song 宋 (960-1279) and Tang 唐 (618-907) periods is different than that of the Han period 漢 (206 BC-220 CE), and even the latter differs from the "proper" classical language from the times of the hundred philosophical schools. The tendency to preserve the classical language might have to do with the general wish to retain as much features from antiquity. This can also be seen in the relatively constant pattern of state administration and the pseudo-legal fixation of all aspects under Heaven.
While the ancient simplicity in language is a feature common with the spoken language, the rich adornments, versed and rhythmic sentences (pianwen literature 駢文) as very common during the first half of the first millenium are totally distant from the directness of a vernacular language. This style was seen as very overloaded and unnatural during the late Tang period, and writers came back to the simple classical style of antiquity. From the Song period on writers started using the vernacular language (gu baihua 古白話 "old plain language") for some genres of written texts, like in collections of sayings (yulu 語錄), stories (pinghua 平話), theatre plays (xiqu 戲曲) or novels (xiaoshuo 小說).
The most important differences of Classical Chinese to modern Chinese are that while modern Chinese is a largely disyllabic language, Classical Chinese is much more monosyllabic, especially in the formative "classical" period of antiquity (for example, ri 日 "sun" instead of the modern taiyang 太陽 or mu 目 "eye" instead of the modern word yanjing 眼睛). Another very common feature of Classical Chinese is that words can change their word class (cilei huoyong 詞類活用), like mu 目 "eye", which can become a verb with the meaning of "to give sb. a glance", or the noun lin 林 "forest", which can become a predicate adjunct with the meaning of "like a forest, manyfold".
Numerative measure words (liangci 量詞) which are very common in modern Chinese, are virtually absent in Classical Chinese, like yi che 一車 "one cart" instead of the modern yi liang che 一輛車 "one vehicle of cart". Objects can be positioned before the predicate in case of negation, like in bu ji zhi 不己知 "(I) do not know myself" instead of bu zhi ji 不 ("not", adverb) 知 ("know", verb) 己 ("self", object). Sentences are often missing a subject, a phenomenon called ellipsis, like in Confucius' sentence bu huai ren zhi bu ji zhi, huai bu zhi ren ye 不患人之不己知，患不知人也 "(It is not the fact) that (I) do not fear that people do not know me, but that (I) fear that (I) do not know people." In the same sentence, a third typical feature of Classical Chinese can be seen, namely the nominalization of phrases. The signifiers of the nominalization are the particles zhi 之 (normally a kind of "genetive" particle) and ye 也 (normally a kind of equalizing particle).
Although the use of Classical Chinese has been given up after 1919, heavy traces of it can still be seen in formal written language, but also in newspaper language.