The word sunna has three separate meanings that are often mixed up by Muslims when the term arises in discussions.
The first sense of sunna is in the context of shari'a rulings, in which sunna is synonymous with the mandub or "recommended", meaning something that one deserves a reward in the next life for doing--such as using the miswak to clean one's teeth before prayer--but is not punished for not doing. It can be contrasted in this context with the "wajib" or obligatory, meaning something that one is rewarded in the next life for doing-- such as performing the prescribed prayers--and deserves punishment in the next life for not doing. The sunna in this sense is at the second level of things Allah has asked of us, after the wajib or obligatory.
A second sense of sunna is in the context of identifying textual sources, as when the Kitab, meaning the Qur'an, is contrasted with the sunna, meaning the hadith. In this sense, sunna is strictly synonymous with hadith, and is used to distinguish one's evidence from that of the Qur'an. One should note that this is quite a different sense from the above-mentioned meaning of the word sunna, though sometimes people confuse the two, believing that the Qur'an determines the obligatory, while the hadith determines what is merely sunna or recommended--but in fact, rulings of both types are found in the Qur'an, just as they are in the hadith.
A third sense of sunna is the way of the Prophet (Allah bless him and give him peace), embodied in the things he said, did, and in his noble states of heart; together with the things he approved of in others (whether by explicit confirmation, or by allowing them to be done in his presence without condemning them), and the things that he intended to do but did not get the chance, such as fasting on the ninth of Muharram (Tasua). Here, sunna simply means the Prophets way (Allah bless him and give him peace), and is not to be confused with either of the two senses mentioned above. In contrast to the first sense, his sunna or way (Allah bless him and give him peace) includes not just the recommended, but rather the whole shari'a, the entire spectrum of its rulings, whether obligatory (wajib), recommended (sunna), permissible (mubah), or avoiding the offensive (makruh) or unlawful (haram). And in contrast with the second sense, his sunna or way (Allah bless him and give him peace) is preserved not only in the hadith, but first and foremost in the Qur'an, for as Aisha (Allah be well pleased with her) notes in the hadith of al-Bukhari, "His character was the Qur'an".
The confusion and non sequiturs that often result when Muslims discuss the sunna could perhaps be better avoided if these distinctions were kept in mind.