Nutshell version: Japan says the islands, which it calls the Senkaku, belong to it. (In fact, the Japanese government formally purchased them from their private owners just two days ago, partly to prevent them from being bought by Japanese nationalists and developed to spite China.) China says that the islands, which it calls the Diaoyu, actually belong to it per post-WWII agreements. The U.S. is obliged by treaty to defend Japan if it’s attacked; on the other hand, the agreements China’s citing to stake its own claim to the islands were authored by the U.S. Time for the Foreign-Policy President and Hillary to huddle. Quickly.
Good Foreign Policy precis here.