The Islamic calendar is based on lunar months, which begin when a thin new crescent Moon is actually sighted in the western sky after sunset within a day or so after the New Moon. Hence, the month is either 29 days or 30 days. There are 12 months in an Islamic year, which is either 354 days long or 355 days long, compared to (Gregorian) civil calendar year of 365 or 366 days. Since the Islamic Lunar year has 12 lunar months, it is on an average, 11 days shorter than the (Gregorian) civil year, the Islamic year shifts earlier in each civil year by about 11 days. The 12 months of the Islamic calendar are:Muharram
Jumada al-Ooola (also known as Jumada al-Awwal)
Jumada al-Ukhra (also known as Jumada al-Thaani)
The Islamic (Hijri) calendar year is usually abbreviated A.H. in Western languages from the latinized “Anno Hegirae” or more commonly known as “After Hijrah.”
It was during the Messenger Muhammad’s (peace be upon him) last pilgrimage in the 10th year of Hijrah (10th year of his migration from Makkah to Medinah), that the decision to introduce a purely lunar Islamic Calendar was made.
Although, the Islamic calendar was introduced in the Christian Era of 632 AD by the Messenger Muhammad (peace be upon him), the beginning of the Islamic era for the count of Islamic years was considered and discussed during 639 AD, the time of the 4th year of the Caliphate of Umar(R.A.) who declared that the most important event in establishing the roots of Islam in Madinah is Hijrah (Messenger’s migration from Makkah), therefore let it become the epoch of the era which happened in 622 AD. The actual starting date for the Islamic Calendar was chosen (on the basis of purely lunar years, counting backwards) to be the first day of the first month (1st Muharram) of the year of the Hijrah. However, the era between 1st year to 10th year of the Hijrah was not following this Islamic Calendar; instead the prevailing practices of various kinds of intercalation was followed in Arabia at that time. Different tribes we! re following different intercalations, so there was no uniform calendar. Accordingly, first day of Muharram, 1 A.H. as practiced in Arabia corresponded either April 18 or May 18, 622 C.E. (Julian calendar). However, if one wants a theoretical starting date for Islamic calendar (on the basis of purely lunar months without intercalation, counting backwards) then the first day of the first month i.e. 1st Muharram, 1 A.H. corresponds to July 16, 622 C.E.
The earliest date of Islamic calendar for which a Julian calendar date is exactly known is 9th Dhu al-Hijjah, 10 AH, which corresponds to March 6, 632 C.E. (Friday), when the Messenger Muhammad (peace be upon him) performed his last and farewell pilgrimage to Makkah.
Source: By Khalid Shaukat (moonsighting.com)
The Arabs in that era named their years after major events, eg. Year of the Elephant, Year of Badr, etc. Problems arose when the muslim population starting growing rapidly. One could promise to pay a debt in (eg) Shabaan, but not specify what year. Could be Shabaan this year, next year, ten years from now! Hence Umar bin Khattaab’s call for a uniform structured calender.