While often referred to as a quality of music, tone has applications in literature as well. Tone describes the attitudes towards both subject and audience by a writer and can encompass one or more of the following qualities: formal, informal, somber, ironic, light, serious, condescending, and so on.
Tone and mood are interrelated, but two different things entirely. Tone is the narrator's attitude towards the subject at hand. Mood is more of what the reader feels, and is created through a combination of setting, theme, voice, and tone.
Tone is the attitude of the narrator. Quite often, the narrator and the author are two very different voices, as writers use the narrator's tone as part of the story that they are attempting to convey.
Tone is best conveyed through language choice. Formal or informal language can convey two very different tones, even on the same subject. The Catcher in the Rye by J.D. Salinger creates Holden Caulfield and his personality largely through the tone he adopts in describing the events of the novel and his attitudes towards them.
Tone allows the reader to identify with the characters in a novel. It is perhaps the best way a writer can create personality within characters without having to formally explicate such matters, which is the difference between good and bad literature. A good writer allows the tone to inform the audience.