A planetary nebula is formed when a star can not substain its fusion reaction in its core. The fusion reaction is what keeps the star from collapsing on itself. When the fusion fire no longer burns strong enough to keep the star inflated, the star condenses which causes it to heat up again. This action causes a solar wind that blows the star's outer layers into space.
They are called "Planetary Nebula" even though they have nothing to do with planets. The reason for their name is when they were first discovered, they looked much like planets did with the telescopes of that era.