The following is gathered from several different source works for a more thorough analysis of the subject.
‘Definition of Ijtihaad:
linguistically ijtihaad means: to expend efforts in order to reach some difficult matter. Technically it means: expending efforts to arrive at a Sharee’ah ruling. And the Mujtahid is the one who expends efforts for this purpose.
Conditions for Ijtihaad:
Being a mujtahid has conditions, from them:-
1) That he knows the Sharee’ah proofs which he needs in his ijtihaad – such as the verses and ahaadeeth pertaining to rulings.
2) That he knows what relates to the authenticty or weakness of a hadeeth, such as having knowledge of the isnaad and it’s narrators and other than this.
3) That he knows the abrogated and the abrogating, and the places where there is ijmaa – such that he does not give a ruling according to something that has been abrogated, nor give a ruling that opposes the (authentically related) ijmaa.
4) That he knows from the proofs that which causes the rulings to vary, such as takhsees (particularization), or taqyeed (restriction), or it’s like. So he does not give a judgment which is contrary to this.
5) That he knows the Arabic language and usul al-fiqh, and what relates to the meanings and indications of particular wordings – such as the general, the particular, the absolute and unrestricted, the restricted, the unclarified, and the clarified, and it’s like – in order that he gives rulings in accordance with what this demands.
6) That he has the ability to extract rulings from the evidences.
And ijtihaad may be split up, such that it may be undertaken in one particular branch of knowledge, or in one particular issue.
What is essential for the Mujtahid:
It is essential that the Mujtahid strives in expending his efforts to arrive at knowledge of the truth, and to give rulings in accordance to what is apparent to him. If he is correct, then he has two rewards: one for his ijtihaad, and the other for arriving at the truth – since arriving at the truth means that it is manifested and acted upon. If, however, he is mistaken, then he has a single reward, and his error is forgiven him, as he (SAW) said, “when a judge judges and strives and is correct, then he has two rewards. If he judges and strives and errs, then he has a single reward.” If the ruling is not clear to him, then he must withold – and in such a case, taqleed is permissible for him, due to necessity.
Taqleed – it’s definition:
Linguistically, taqleed means: Placing something around the neck, which encircles the neck. Technically it means: Following he whose sayings is not a proof (hujjah).
Excluded from our saying, “following he whose saying is not a proof” is: following the Prophet (SAW), following the ijmaa and also following the saying of the sahaabee – for those who consider the saying of a single sahaabee to be a proof. So following any of these is not called taqleed, since there is a proof for doing so. However this type of following is sometimes referred to as taqleed in a very metaphorical and loose sense.
The Place of Taqleed:
Taqleed is done in two cases:
1) when the muqallid is an ‘aamee (a common person) who does not have the ability to aquire knowledge of the sharee’ah ruling by himself. So taqleed is obligatory upon him, due to the saying of Allaah – The Most High, “ask the people of knowledge if you do not know.” So he does taqleed of one whom he considers to be a person of knowledge and piety. If there are two such people who are equal in his view, then he chooses any one of them.
2) The mujtahid when he encounters a new situation, for which an immediate solution is required, but it is not possible for him to research into this matter. So in this case he is permitted to perform taqleed.
Some stipulate as a condition for the permissibility of taqleed, that the matter is not from the fundamentals of the deen – those matters which must be held as aqeedah – since matters of aqeedah require certainty, whereas taqleed only amounts to dhann (knowledge which is not certain).
However the correct saying in this matter is that this is not a condition, due to the generality of his – the Most High’s – saying, “ask the people of knowledge if you do not know.” And this verse is in the context of affirming the Messengership – which is from the fundamentals of the deen. And also because the common person cannot aquire knowledge of the sharee’ah rulings with it’s proofs by himself. So if he is unable to arrive at the truth by himself, then nothing remains for him except taqleed, due to the saying of Allaah – the most High, “fear Allaah as much as you can”
The Categories of Taqleed and its types
a) The scholars of Usool (fundamentals) have mentioned definitions to clarify the true meaning and essence of taqleed, and from them is the saying of some of them that taqleed is the acceptance of a saying of a person without him knowing its evidence. And some of them [the scholars] held the view that taqleed is the acceptance of the saying of a person without argument. And Abu Ma’aali al-Juwayni chose the definition of taqleed that it is the following of one whose following is not based on proof and does not rely upon knowledge. And these definitions of the scholars of Usool, which are all close in meaning, have in it differences [in wording] which originate in the skill of enunciation, but the point here is to clarify the essence of taqleed in the manner of approximation.
b) And as for its categories along with the ruling of every category, then it is as follows:
1) Taqleed by the one who has the skills of ijtihaad, to others from the scholars after the truth has been made clear to him with confirmed evidences from the Prophet (s).
This is not permissable for him to do taqleed to what contradicts that which reached him from evidences and ijmaa’ (consensus).
2) Taqleed by the one who has been endowed the skill of ijtihaad, to one other than him from the mujtahideen before he reaches a ruling with his [own] ijtihaad.
Then it is not allowed for him to do taqleed to others.
[This is what] as-Shaafi’i, Ahmad, and others, Allah have mercy on them, held as their opinion, and is more correct, due to his ability to arrive at a ruling by himself. He is responsible for ijtihaad to know what the sharee’ah has made him liable for because of His saying, the Most High,
“So have taqwa of Allah as much as you are able,”
and what has been confirmed from the saying of the Prophet(s), “When I command you by a command, then follow it as much as you are able.”
3) Taqleed of the one who is not able to research the evidences and derive rulings from it, to a scholar who has been endowed the skill of ijtihaad in the evidences of the sharee’ah.
This is permissible, due to His saying, the Most High,
“Allah does not burden a soul more than it can bear,”
and His saying, the Exalted,
“Then ask the people of remembrance [scholars] if you do not know,”
and other texts similar to these, which point to the removing of difficulty and the protection of the one responsible, from straying about in the rulings and speaking about Allah without knowledge.
4) The taqleed to the one who differs with the sharee’ah of Islam from the forefathers, leaders, and rulers, due to nationalism or following desires.
This is prohibited by ijmaa’. And verily many texts from the Qur’aan and Sunnah have been mentioned [in this]. And Allah, the Most High said, say:
‘Rather we shall follow what we found our fathers following,’ even though their fathers did not understand anything nor were they guided.”[Baqarah:170]
And Allah, the Most High said,
“But no, by your Lord, they can not have faith until they make you judge in all disputes between them, and they find in themselves no resistance against your decisions, and accept with full submission.”
And Allah, The Most High said,
“And it is not for a believer, man or woman, when Allah and His messenger have decreed a matter that they should have any option in their decision.” [al-Ahzaab:36]
And the Most High said,
“And let those who oppose his [the Messenger’s] commandment beware, lest some trials should befall on them or a painful torment be afflicted on them.”[Noor:63]
And the Most High said,
“Say If you [indeed] love Allah, then follow me, Allah will love you and forgive you your sins.”[Aali Imraan:31] And the Most High said,
“Verily Allah has cursed the disbelievers and prepared for them a flaming fire. They will abide in it forever, they will find no protector nor helper. On the day when their faces will be turned over in the Fire, they will say: ‘Oh would that we had obeyed Allah and obeyed the Messenger. And they will say: ‘Our Lord! Verily we obeyed our chiefs and our great ones, and they misled us from the right way. Our Lord! Give them double torment and curse them witht a mighty curse!” [al-Ahzaab:64-68]
The Fataawaa of The Standing Committee for Islamic Research and Ifta, No. 11296
The Ranks of People
People’s situations and abilities differ greatly. Some have the ability to study and learn. Some are relatively weak-minded and even if they studied their whole lives, they would not benefit.
Between these two extremes are many different people in different circumstances and with different mental capabilities. For that reason, Allah has commanded those who do not know to ask those who do know.
Allah has said,
“If a contingent from every expedition remained behind, they could devote themselves to studies in religion, and admonish the people when they return to them, that thus they (may learn) to guard themselves (against evil)” (al-Taubah 122).
This command came after stating the impossibility of all the believers going out,
“Nor should the Believers all go forth together” (al-Taubah 122).
The practice of the early scholars of this Nation, from the time of the Companions and afterwards, was in accord with this command.
“The one with lesser knowledge would ask the scholar on an issue that occurred and he would give him a verdict with texts that he knew from the Quran and Sunnah.” 
For that reason, a group of the Companions became famous for giving many religious verdicts due to their prominent positions and deep knowledge in understanding the Quran and Sunnah. 
This is an agreed-upon matter. Ibn Abdul Barr stated,
“The scholars do not differ on the point that the masses must follow (make taqleed for) their scholars. They are the ones meant by the verse, ‘Ask the people of the reminder if you know not’ [al-NahI43].” 
Those scholars who were very strict regarding the matter of taqleed, such as ibn Abdul Barr, ibn Hazm, ibn al-Qayyim, al-Shaukaani and others, were speaking about what some of the learned of particular schools would do in replying to questions without relying on evidence. They were also speaking about when a layman would ask a scholar about the opinion of the school of fiqh without paying any attention to the evidences. After his discussion censuring taqleed, ibn Abdul Barr wrote,
“This [censuring] is directed to the non-laymen [that is, it is directed to the scholars and specialists]. The masses [non-scholars] must make taqleed of its scholars when any new occasion arises as it will not be clear to them wherein lie the proofs and, due to their lack of understanding, they will not be able to reach that knowledge. This is because knowledge is of different levels. One cannot reach its higher levels until one attains its lower levels. This is, in fact, the barrier between the masses and seeking the proof.” 
Ibn Hazm also stated,
“We do not object to people asking the scholars for religious verdicts. What we object to Is their taking the statement without any proof to support it, without [the scholar] referring it to any text of the Quran or Sunnah, because this will necessarily result in the following of mistakes. If during the time of the Messenger (peace and blessings of Allah be upon him) there were some who gave incorrect religious verdicts, after his death, they are more in number and more widespread. Therefore, it is an absolute must that one be very cautious concerning getting rulings from any scholar who does not strengthen his ruling by basing it on the Quran, Sunnah or consensus.” 
Ibn al-Qayyim wrote,
“A scholar may err. This is inevitable as he is not protected from error. It is therefore not permissible to accept everything that he says and raise his statements to the status of the one who is protected from error. This is what every scholar on the face of the earth censures. They forbid it and they censure those who practice it. Indeed, this is the source of the afflictions and trials of those who practice taqleed.” 
“The one making taqleed…does not truly make taqleed unless he does not ask for any evidence. If he does ask for the evidence, he is not making taqleed.” 
When they censured taqleed, they were not demanding that everyone make ijtihaad in understanding the texts and deriving rulings from them. They knew that the mujtahideen are a particular class of people from among the Nation. For that reason, they laid down the conditions for a mujtahid. 
If they believed that everyone was obliged to make ijtihaad, they would not have stated those conditions. The prohibition of taqleed does not necessarily imply the order to make ijtihaad. Not requiring everyone to make ijtihaad is based on many considerations, most notably:
(1) The natures of individuals are not equal. Some of them are receptive to knowledge and qualified to make ijtihaad. Some of them fall short on those counts.
(2) If we ordered everyone to make ijtihaad, the worldly affairs would collapse. The farmer would leave his farm and the craftsmen would leave his craft. Those workers would be busy working to attain the level of ijtihaad. This would result in destruction of worldly life and systems and also cause obvious harm and hardship.
(3) No matter how high a person reaches in matters of knowledge, it will be impossible, due to many reasons, for him to reach a level where he is able to make ijtihaad on every individual issue.
In sum, the issue of taqleed is between two fringes:
One fringe requires taqleed for the schools of fiqh [for everyone].
The other fringe requires study and ijtihaad [for everyone].
The truth, however, is between these two fringes.
In approving of this point, Ibn Taimiyyah wrote,
The extreme among the theologians and jurists say that everyone, even the layman, is required to study and make ijtihaad concerning the secondary issues. This is a weak opinion. This is because even if the seeking of that knowledge were required upon every individual, it would be obligatory only according to one’s ability. And the ability to understand the perplexing evidences is something impossible or very difficult for the majority of the commoners. On the opposite end, there are the followers of the schools of fiqh who require everyone, scholars and laymen, after the Imams of the schools to make taqleed… The opinion of the majority of the Nation is that ijtihaad is permissible in general and taqleed is permissible in general. They do not obligate ijtihaad upon everyone and forbid taqleed. And they do not obligate taqleed upon everyone and forbid ijtihaad. Ijtihaad is permissible for the one who has the ability to make ijtihaad while taqleed is permissible for the one who is not able to make ijtihaad. However, is it permissible for the one who has the ability to make ijtihaad to make taqleed?
On this issue there is a difference of opinion. The correct view is that it is permissible for him whenever he is not able to make ijtihaad. (For example, it is permissible when) the (opposing) evidences are equal to each other, when he does not have the time to make ijtihaad or when the evidences concerning the issue are not manifest to him. In these cases, he is incapable and, therefore, when he is incapable, the obligation is dropped from him and he then moves to its substitute, which is tagleed. 
In contemporary times, Shukri Mustafa has gone to an extreme concerning the issue of taqleed. He was of the opinion that the members of the Muslim society are all to be declared disbelievers due to their taqleed and that it is a must that each one of them make ijtihaad. In describing the Muslim jamaah, he stated,
“It is one jamaah with one leader. Ir is based on the Book of Allah and the Sunnah. They declare disbelievers those who make taqleed. Every Muslim among them is a mujtahid. There is no room for sects, schools of fiqh or parties. Instead, they are all around its leader, clinging to the rope of Allah.” 
While refuting the ahl al-sunnah, he stated,
“In refutation to their statement that Allah would not require of those ignorant people Islam ,
The reality is that they were not ignorant except due to their leaving of Islam and being preoccupied with worldly matters. It was after they became ignorant that they were no longer knowledgeable and hence they left Islam completely and became preoccupied with this world. They blindly followed others (made, taqleed) in the matter of their religion and of their Lord until they became learned in their worldly matters and then they blindly followed others (in religious matters).” 
He also said,
“The problem is that those people hypothesize that the reality in which they are living is Islamic and it is upon that that they build their opinions and fantasies… One finds among those people that they claim to be Muslims people who can hardly understand a hadith and do not know anything about Islam except the name. They argue that such people could not be burdened with making ijtihaad to know the laws of Islam. However, our statement, that the principle is that we must use Islam to judge the reality we are living in, removes that problem. This would make it clear that those people do not have the slightest connection to Islam. From the beginning, they are not Muslims. Therefore, there is no need to try to understand why anyone without any intelligence would be made responsible by Allah to carry the weight of Islam.” 
He cites general evidences to show that everyone has the ability to make ijtihaad. He wrote,
“Allah shows that mankind has the ability to ponder over Allah’s signs.
‘Here is a message for mankind: let them take warning therefrom, and let them know that He is (no other than) One God. Let men of understanding then take heed’ [Ibraaheem 52].
Allah also says,
‘Do they not consider the Quran (with care)? Had it been from other than Allah, they would surely have found therein much discrepancy’ [al-Nisaa 82].
Allah also says,
‘Do they not then earnestly seek to understand the Quran, or are their hearts locked up by them?’ [Muhammad 24].
And Allah says,
‘Do they not ponder over the Word (of Allah), or has anything (new) come to them that did not come to their fathers of old?’ [al-Muminoon 68].” 
He also presents some rational arguments that may be summarized as follows:
(1) The Word of Allah is not in need of explanation and clarification.
Shukri Mustafa stated,
“Is Allah in need of a commentator without His permission or is He not in need of such? If they say He is not in need of such, then the provisions are enough to refute them. If they say that He is in need of such, they have associated a partner with Allah, the Great, for which He has given no authority.” 
(2) We do not know of the good intentions of those who give religious verdicts. Therefore, according to Shukri Mustafa, we cannot take their religious verdicts. He stated,
“This is all if we accept the fact that they have good intentions. But we must leave that also. For can you, assuming that they are leading scholars, say with certainty that they have good intentions? If they say with certainty that they have good intentions, they are giving to themselves a right that belongs only to Allah, that is knowing what is in the hearts. If they answer that Allah alone knows about them, it is obligatory upon them to leave that source which may contain an evil intention.” 
(3) The jurists do not carry any more knowledge than we do.
The jurist has an understanding that is particular to him and which we are not in need of. If the Word of Allah were in need of jurists to be understood, the jurist would then need someone who could understand his words. This vicious circle would then continue ad nauseum. Furthermore, the means of education today are easier than in any previous era.