Sherry vinegar is made from sherry wine, which is produced in the Jerez (Xérès or Sherry) denomination of origin in southwestern Spain. The unusual thing about the vinegar (and the wine) is that it's aged and blended so that younger vinegar picks up the characteristics of the older vinegar: complex, harmonious, deep, rich, nutty, slightly sweet, and very sharp.
You can substitute red wine vinegar.
When buying sherry vinegar, look on the label for the symbol shown to verify that the vinegar was produced by registered bodegas (cellars) in the Jerez denomination of origin. There are two types of sherry vinegar: vinagre de Jerez, which is aged at least six months, and vinagre de Jerez reserva, which must be aged for at least two years but is often aged much longer, sometimes as many as 30 years.
Like all vinegars, sherry vinegar will keep quite a while, especially is keep in a cool, dry place away from light and heat.