Caseless ammunition is a bullet without the traditional brass casing. The bullet, charge, and primer are all (for lack of a better description) fused into one inseperable package, eliminating the need for an ejection port. This may sound nice, but there IS a reason bullets have cases.
See, for a gun to work properly the chamber must be totally sealed to prevent a backdraft of the gases created when you ignite the charge. When you fire normal ammunition the casing expands due to the pressure and heat of the gas, sealing the chamber and giving the gas only one way out. With only one way to go the gases head for the hole at the end of the gun barrel, pushing the bullet along with insane velocity.
The problems with caseless ammunition are: 1) how to seal the chamber without the aid of a casing and 2) how to get the powder to stay put without a casing to hold it there.
Since the casing in a normal bullet holds the powder charge, its elimination brings about a problem. This problem was solved by the development of molded gunpowder. The powder would simply be molded into shape and burned when fired. However, this created another problem, cook-off.
Cook-off is when the internal temperature of the weapon is high enough to ignite the charge by itself. (can we say misfire?) This is a very serious problem because nobody likes ammo that goes off before you pull the trigger. They solved this problem by developing High Temperature Ignition Propellent (HTIP). This reduced the risk of cook-off and made caseless ammunition viable.
The chamber sealing problem was much easier to solve. The Heckler & Koch G11 rife had a rotating cylinder block that both rotated the bullets into firing position and sealed the chamber. This allowed the weapon to function normally but the cylinder block had a wear problem with the rear of the barrel, giving it a life expectancy of about 6000 rounds.
Although it has problems, caseless ammo does have a number of benefits. Without an ejection port the guns using it have less chance of getting jammed by foreign objects in the chamber. Eliminating the ejection phase of the firing sequence helps increase rate of fire. Since there is no casing, people don't have to police spent cases or worry about the casings hitting the guy next to them. Also, caseless ammunition is lighter, enabling people to carry more ammo with them.
The primary reason that the United States Military hasn't adopted caseless ammunition is because of cost. It was deemed cheaper to upgrade the M16 than to switch over to another weapon altogether. However, that doesn't mean that we won't be seeing caseless ammo in local gun stores sometime in the future.