Ever since the beginning of manned flight pilots have experienced something strange when landing an aircraft. Just before touchdown it suddenly feels like the aircraft just does not want to go lower. It just wants to go on and on due to the air that is trapped between the wing and the runway, forming an air cushion. The air cushion is best felt in low wing aircraft with large wing areas. This phenomenon is called (aerodynamic) ground effect. The Wright brothers probably have not even flown out of ground effect in their early flights, they benefitted from ground effect without even knowing it existed.
Around 1920 this effect was first described and some (theoretic) research was carried out in this field (e.g. ref.840). From that time on pilots knew ground effect and sometimes even used it on purpose. The seaplane Dornier DO-X could only cross the Atlantic when it was flying with its hull just above the wavecrests. In the second World War pilots knew that when they lost an engine or fuel on the way back from the enemy that they could reach home by flying just a few metres above the sea, thus needing less power and saving fuel.

Do-X flying boat
Two phenomena are involved when a wing approaches the ground. Ground effect is one name for both effects which is sometimes confusing. These two phenomena are sometimes referred to as span dominated and chord dominated ground effect. The former results in a reduction of induced drag (D) and the latter in an increase of lift (L). The designations span dominated and chord dominated are related to the the fact that the main parameter in span dominated ground effect is h/b (height/span), whereas in chord dominated ground effect it is h/c (height/chord).

HK-1 'Spruce Goose' in ground effect
When aeronautical engineers mention ground effect they usually mean span dominated ground effect. The drag of an aircraft can be split up into different contributions. The two main sources of drag are called friction drag and induced drag. As the name suggests the friction drag is caused by friction between the air and the skin of the craft and is therefore dependent on its wetted area. Induced drag is sometimes also called lift induced drag because it is the drag due to the generation of lift. When a wing generates positive lift the static pressure on the lower side of the wing is higher than on the upper side. The average pressure difference times the surface area of the wing is equal to the lift force. At the wingtip there is a complication: the high pressure area on the lower side meets the low pressure area on the upper side therefore the air will flow from the lower side to the upper side, around the wingtip. This is called the wingtip vortex. These vortices are found with all aircraft in flight, sometimes they are visible at an airshow: when an fighter flies at a high angle of attack, the water in the air condenses in the low pressure vortex and you see two curled lines extending backwards from the wingtips. The energy that is stored in those vortices is lost and is experienced by the aircraft as drag.
The amount of induced drag is dependent on the spanwise lift distribution and the aspect ratio of the wing. A high aspect ratio wing has lower induced drag than a low aspect ratio wing since its wingtip vortices are weaker. That is because the rest of the wing is "further away" from the tip so that the high and low pressure areas at the tip are smaller.

Span dominated ground effect, in free air the vortices around the wing tips have more space to develop than when they are bounded by the ground
There is not enough space for the vortices to fully develop when a wing is approaching the ground. Therefore the amount of "leakage" of pressure from the lower side is less and the vortices become weaker. The vortices are also pushed outward by the ground, apparently the effective aspect ratio of the wing becomes higher than the geometric aspect ratio. This is a common way to account for spanwise ground effect. Wieselsberger has (theoretically) found this in the 1920's by applying Prandtls lifting line theory (ref.201). From this theory it follows that induced drag reduces to approximately 50% at a ground clearance of 10% of the wingspan.

The influence of ground effect on induced drag according to Wieselsberger
As described above, ground effect increases lift. The air cushion is created by high pressure that builds up under the wing when the ground is approached. This is sometimes reffered to as ram effect or ram pressure. When the ground distance becomes very small the air can even stagnate under the wing, giving the highest possible pressure, pressure coefficient unity.

Chord dominated ground effect - results of 2D numerical calculations

These graphs illustrate lift increase due to ground effect, they were made using the Airfoil Calculator
The high pressure air cushion can clearly be seen in the illustrations. The pressure around an airfoil has been calculated with and without ground effect, both at a five degree angle of attack. In free air the (2D) lift coefficient was 0.8 and at a ground clearance of 0.05 times the chord it was 1.1. The high pressure at the bottom of the airfoil in ground effect is caused by the ram effect. The nose suction peek is also somewhat more pronounced in ground effect, which indicates that separation is likely to occur at the nose. This has been confirmed by wind tunnel tests.
Ground effect not always increases lift. It is possible under certain conditions that lift reduces when an airfoil approaches the ground. This is the case when the bottom of the foil is convex and the angle of incidence is low, in that case a venturi is created between the foil and the ground where high-speed low-pressure air sucks the airfoil down. This is illustrated with 2D calculation results below. This venturi-type ground effect, albeit more extreme, is used by race car designers to make it "stick" to the road at high speeds.

Chord dominated ground effect - results of 2D numerical calculations

These graphs illustrate lift decrease due to ground effect, they were made using the Airfoil Calculator
The combined result of the two phenomena described above is an overall increase of the ratio between the lift and the drag (L/D). The lift increases when the ground is approached and because of the increasing lift the induced drag may not even decrease in absolute numbers, but even a slight increase still leads to an increased L/D ratio.
The L/D ration is commonly used to express the efficiency of a vehicle. When a vehicle is in stationary motion its weight is equal to its lift and its propulsive thrust is equal to its drag, therefore the L/D ratio is an expression for the amount of weight that can be carried with a certain amount of thrust. The higher this ratio, the higher its efficiency and the lower its fuel consumption (for a given weight). As the L/D of a wing increases with decreasing ground clearance the craft becomes more efficient in ground effect.
The maximum L/D of a transonic airliner in high-altitude cruise flight approaches 20 and small subsonic turboprop commuter aircraft may be around 15. Already in the early sixties Lippisch showed that in ground effect higher values could be reached, his X-112 achieved an L/D value as high as 23 in ground effect flight.
Ever since the very first experimental WIG boats have been built in the nineteen-thirties, longitudinal stability has been recognised as a very critical design factor. When not designed properly WIG boats show a potentially dangerous pitch up tendency when leaving (strong) ground effect. Powerboats sometimes show the same tendency, when they meet a wave or a wind gust they may suddenly flip backwards.

A longitudinally unstable race boat having an accident
The reason for this behaviour is the fact that the working line of the lift vector of a wing is located relatively far aft at very small ground clearances and moves foreward when climbing out of ground effect. The stability problem can be overcome by installing a relatively large horizontal tail and although a WIG boat cannot be stabilised by c.g. movement alone, the location of the c.g. is very important for achieving acceptable longitudinal stability. A more indepth explanation is found in the theory section.
Some wing planforms are more stable than others, the reversed delta from Lippisch proved to be very good, therefore it has been very popular lately (e.g. in the Airfisch series craft). Not only the planform, but also the wing section is important for stability. Recent research showed that wing sections with an S-shaped camber line are more stable than conventional wing sections. Many new designs have such an S-foil.
So far not many wing section families have been designed especially for operation in ground effect. The designers of WIG boats sometimes just utilised one of the commonly known wing sections for aircraft for their WIG designs, such as the NACA sections. A very popular wing section used to be the Clark Y section, because of its flat bottom, which was assumed to be good in ground effect. More recent and advanced WIG designs always have wing sections that have been optimised for that specific craft.
Aerodynamicists tend to think of wing sections in terms of a camber line and a thickness distribution. For aircraft that operate in free air this makes sense, but in ground effect the shape of the lower side of the wing is very important. In many cases designers opt for a flat lower side because a convex lower side may in certain situations lead to suction at the lower side, either hydrodynamic or aerodynamic. A concave bottomed wing section leads to very poor longitudinal stability: it further exaggerates the abovementioned pitch up tendency.
An example of a recent airfoil that was developed specifically for use in ground effect is the DHMTU family of airfoil sections. These allow tuning of upper and lower side separately. Both the DHMTU and NACA 4 digit sections can be studied with the Airfoil Calculator of this site.

Example of a special wing section for ground effect, its has a pronounced S-shape at the bottom only, this graph was generated with the Airfoil Calculator
Although the design of the upper side is less important than the lower side, here also some general rules apply. The nose radius of the profile must not be too small because that may lead to very early separation in strong ground effect. Furthermore an S-shaped camberline is favourable for stability, so with a given (non S-shaped) bottom this leads to a very pronounced S-shaped upper side.