God is Dead

"God is dead" is one of the most often quoted and misunderstood quotes from Nietzsche's body of work. The stock misinterpretation is that Nietzsche was referring to a literal being "God" as having died. It is profoundly unlikely that he intended that as his meaning, in large part, because he was an atheist. He never believed in the existence of a literal God in the first place. So it is a clear non-sequitur to think that he would concede that such a being ever existed at all.
What Nietzsche was trying to say is that the man-made concept of God is dead. In other words, the moral framework that man placed onto the concept of God the creator couldn't do what it was supposed to do any longer. Rather than being what it was supposed to be (moral guide, encouragement) the concept of God had become an inhibition to the development of mankind, or at least the small subset of mankind that interested Nietzsche.
Nietzsche, like many philosophers, was fascinated by the possibility of an ideal man. In the early Nietzsche this was represented by his Master Type or noble man and eventually developed in the more deeply misunderstood concept of the Übermensch. Without going into a lengthy explanation, the conflict nascent in the phrase "God is dead," and on which Nietzsche would spend the bulk of his writing, goes something like this. Mankind is, consciously or not, aiming to create the Übermensch. Along the way, mankind stalled with the concept of God; the external authority figure. The Übermensch cannot accept the concept of God because the Übermensch is a self-ruling being: he gives laws to himself and enforces them onto himself, to paraphrase Nietzsche. It is, ultimately, the Übermensch who will and must overcome the concept of God and expose it for the dead idea it is, if only to himself.