According to About.com, agate forms from the deposition of silica in aqueous solution at low water depths and relatively low temperatures. It is a form of chalcedony mineral, which is a mass of quartz composed of microscopic crystals. Its porous nature, relative to other forms of quartz, allows it to develop impurities that give it a variety of colors and patterns, making it a popular stone for use in jewelry.
Agate is an end result after the chemical weathering of other rock. It is commonly found in association with opal, another silicate rock valued for its decorative aesthetic. Because agate forms as a deposition from water, under the right circumstances it can be part of a fossilization process. Large logs of fossilized wood are made from agate. It is extremely sensitive to environmental conditions while forming, which contributes to its huge variety in appearance.
Unlike large crystals of quartz, the nature of agate makes it transparent or translucent only in thin layers. Thicker deposits are always opaque. Larger quartz crystals are often included within the microcrystalline agate formations. These formations, also known as almonds, are small stones with a white crust. The agate used in jewelry is only revealed by cutting the almond open.