From A Wiki of Ice and Fire
A direwolf is a close relative of the wolf, but larger and stronger. A grey direwolf in a white field is the banner of House Stark. They are named after the real world direwolves, Pleistocene megafauna which were larger than modern wolves (but not as large as portrayed in the books). According to GRRM direwolves are an extinct animal Beyond the Wall, as they are a very large and dangerous predator, and people have probably hunted them out. 
Direwolves can grow as large as ponies. In proportion to their bodies, their legs are longer and their heads are larger than normal wolves. Their muzzles are also longer and more pronounced. Possible colorations include grey with yellow eyes and black with green eyes. Albino direwolves have white fur and red eyes.
Like other wolves, direwolves are social animals and travel in packs. They are efficient solitary hunters as well, and extremely intelligent. Left to its own devices, a solitary direwolf can join a pack of regular wolves, and its larger size can grant it a significant advantage when establishing pack dominance.
According to Theon Greyjoy, direwolves had not been sighted south of the Wall for two hundred years until Robb Stark found a dead female direwolf with a litter of six pups on the path between Winterfell and the holdfast where Gared was executed.
Like other wolves, direwolves can form a magical bond with a warg.
References and Notes
- Dire Wolf - wikipedia article on real-world dire wolves.