English, with its one and only "you" for everyone and every degree of formality or informality, stands alone in the way it deals with "you". Except for English, all the Indo-European languages, including German, have both a formal "you" and a familiar "you". The German familiar term du is actually related to "thou". You use Sie for formal address and du (plural, ihr) for the familiar. Sie is for strangers or people you don't know well. This polite form implies a certain formality between people and takes into account social considerations. Sie is used for those people we address as Herr, Frau and with other titles. It is also polite to address co-workers as Sie.

Hi Chris, Your question reminded me of this article http://www.phrasemix.com/the-phrasemix-blog/english-is-really-two-languages.html I guess this is true for human nature and hence for all the languages. Don't you think?

Cherry is right. There is a lot more, that makes speaking formal or less formal, than the German "Du" or "Sie". In common situations, e. g. when you deal with unknown persons, you will try to demonstrate modesty and politeness. Thus it is a good practice to excuse yourself, before you ask a question, and to explicitly say "please" and "thank you", wherever possible. And of course you will (try to) use the "Sie" in its correct grammer (as Falk explaned), as long as you don't know whether the person, you are addressing, might accept the "Du". (Robert is right, there are more and more situations where "du" is accepted, however you shouldn't try to find that out with the first phrase you say.) Apart from that, there are a lot of different sorts of formal German, e. g. in written contracts, laws, official documents and in the vokabulry of certain professions (the so called "Fachchinesisch" = "professional Chinese", meaning that it is hard to understand for outsiders)..

Do you mean rather 'Hochdeutsch' and 'Umgangssprache'? If so, in all formal written material 'Hochdeutsch' is used. In normal spoken German among native speakers there will be lots of slang and different dialects depending on the area.

"du" is used much more often than "Sie". It seems to be comparable to the "Mr., Mrs." in America. Most of the time, you don't bother with the formal "Mr., Mrs.", except in particular situations. This is my experience. Even greeting a common stranger, one seems to use "du", unless, say, for example, you were trying to talk to a university professor, a business owner, the parents of a friend, or someone in a more professional or respected manner. "Sie" is just too impersonal for the average person.