Ghee is made of butter. Butter is traditionally made from the fats of cow milk, but in India, buffalo milk is also used to make ghee.
Ghee is clarified butter. Butter is made by separating cream from milk. The butter is then clarified further by simmering over a low heat until it begins to bubble and most of the liquid is evaporated. This process also causes the milk solids to caramelize so that the solids can then be separated from the liquid portion of the simmered butter. The solid portion can either be scooped off or separated through a strainer to get ghee.