Initiative controls the order of attacks in combat. At the beginning of
combat, initiative is determined randomly for each participant, with a bonus
based on one's dexterity modifier and the possession of the improved
initiative feat. Combat then proceeds in order of initiative, with those
who scored the highest initiative attacking first.
If an attacker surprises her opponent (by being invisible or hidden, for
example), then she gets a surprise round before normal combat begins.
Everyone who has surprised their opponent participates in this surprise round,
while other characters do not.
When a combat participant has not yet had their first attack (during the first
round of combat or during the surprise round), they are flat-footed: they do
not receive a dexterity bonus to AC (and therefore can be sneak attacked), and
cannot make attacks of opportunity. Once they make their first attack, they
are no longer flat-footed. Characters with the uncanny dodge feat
retain their dexterity bonus to AC while flat-footed, but cannot make attacks
of opportunity.