Cities in Germany are adopting environmental driving zones called Umweltzonen. The zones will be ranked from 2 to 5, aligned with the Euro emissions scale, and the emissions ranking of your car will decide whether you are allowed to drive in a particular zone. When you register your car, you receive a colored badge that signifies your vehicle's eco-friendliness -- the level 5 badge will presumably be introduced next year, when Euro V legislation goes in effect. There is no badge for level 1, the least environmentally friendly vehicles.
The zones will apply to German cars and foreign cars as well, though the posts (and German translations) don't make it clear if the rules only apply to cars registered in Germany. If you are found driving in a zone above your "rank," you will be fined 40 euros, and points will potentially be assessed on your license. So far, Ilsfeld, Leonberg, Ludwigsburg, Mannheim, Schwäbisch-Gmünd, and Stuttgart have adopted the Umweltzonen, with Augsburg, München, and Nürnberg to adopt them on January 1 2008.
Thanks for the tip, Enzo!