Grace is a type of divine energy related to an angel's being. It's effectively what makes them angels; without it they are mortal. Anna calls its power "pure creation." Removal of grace is considered a great taboo by angels; it is akin to disobeying orders and punishable by a death sentence, or in the very least torture and imprisonment. Uriel is able to take Anna's grace from the oak tree that it created when she fell. In turn she is able to re-imbibe it and return her angel status.
Metatron takes Castiel's grace from him to use in a spell to cast all the angels from Heaven. Without it, Castiel is human, although much like Anna he was still able to hear the angels on "angel radio." After living as a human for some time, he kills an angel called Theo and takes in his grace, and becomes an angel again. It therefore appears that grace is not unique to an individual angel, and can be transferred, though Castiel seemed quite unsure whether taking Theo's grace would be permanent, or what powers he would have.
When angels leave their vessels a small amount of the angel's grace remains inside the vessel, "the departed shall remain, and the remains shall be the departed." The Men of Letters believed that if the grace could be extracted, it could be used in a tracking spell to locate the angel the grace belonged to.
Anna Milton reveals that she is an angel who chose to fall from Heaven and ripped out her grace. Witnesses mistook Anna's grace for a shooting star. Where it landed, in Union, Kentucky, an enormous oak tree sprouted in the space of a year. In conversation with Dean, Anna indicates that given the choice she would not recover her grace, and would remain human. She relishes the full range of emotions that humans enjoy and the choices they have.
When Anna arrives, the grace has been stolen from the oak tree, and Uriel reveals to Dean that he has it bottled in a phial he keeps around his neck. It appears as an indistinct white smoke with its own internal source of light. During the climactic fight of the episode, Anna smashes the phial, and the grace surrounds her and enters her mouth, after which her eyes glow yellow and her body glows bright white.
Anna yells for the Winchesters to close their eyes as the light intensifies. In the final flash, Alastair's meatsuit is destroyed, and when the dust settles, Anna has also disappeared. She reappears in future episodes as a fully reconstituted angel.Over the course of season five, Castiel is cut off from Heaven, and by 5.02 Good God, Y'All lost a number of his angelic powers, including his ability to heal humans. He does not however appear to be any less an angel. In 5.21 Two Minutes to Midnight he has become essentially human (this is also seen with Future!Castiel in the alternate future or alternate universe in 5.04 The End, however no reference is made to his grace or lack of it, though his depowering may have had to do with carving an angel banishing sigil into his chest in 5.18 Point of No Return. His grace is not mentioned when he is restored in 5.22 Swan Song. Following his destruction by the leviathans he takes into himself from Purgatory, he is resurrected and lives with and marries a woman called Daphne Allen for a year, with no memory of who he is. Again it does not appear that he lost his grace.
Metatron removes Castiel's grace to use in the spell to expel all the angels from Heaven. He sends Castiel to Earth saying "I want you to live this new life to the fullest. Find a wife. Make babies. And when you die and your soul comes to Heaven, find me. Tell me your story."
After being held captive and tortured by Malachi, one of his minions, Theo tries to get Castiel to "put in a good word" with Metatron for him. Castiel slits Theo's throat with an angel sword, releasing his grace. Castiel then inhales it, turning him back into an angel and restoring at least some of his powers which is proven when he is then able to smite the now-human Theo.
Sam and Castiel learn that Sam still has a bit of Gadreel's grace inside of him which, though harmless, could be used to track the angel according to a Men of Letters file "On the Inner Workings of Angels." Castiel's healing of Sam is slowly destroying the grace and if he keeps it up, it will be gone for good. Sam and Castiel start a procedure to extract the grace, but extracting the grace causes Sam to start to revert back to the state he was in before Gadreel possessed him though he doesn't care and insists Castiel continue as they don't have enough grace for the spell. Castiel reluctantly continues, but stops when he can't stand it anymore and completely heals Sam of the rest of the damage he took from the trials, destroying the rest of the grace. Sam and Castiel try the spell, but find that they didn't have enough grace for it to work.