Despite Manetho's importance for the study of the history of Ancient Egypt, nothing much is really known about the man himself. Even the exact meaning of his name has been a point of discussion among Egyptologists and although it is now generally agreed upon that the name "Manetho" comes from the Ancient Egyptian mniw-htr, which means "keeper of the horses", the existence of such a name is not attested by Ancient Egyptian sources.
Manetho lived in Sebennytos, the capital of Egypt during the 30th Dynasty, and was a priest during the reigns of Ptolemy I and Ptolemy II. He is said to have been involved in the creation of the cult of Serapis - a god added to the Egyptian pantheon with both Hellenistic and Egyptian traits during the reign of Ptolemy I -, but this can not be confirmed.
Manetho owes his importance to the fact that he wrote the Aegyptiaca, a collection of three books about the history of Ancient Egypt, commissioned by Ptolemy II in his effort to bring together the Egyptian and Hellenistic cultures.
In order to do so, Manetho had access to the archives of the temple where he served as a priest. Such archives contained a vast number of different kinds of writings, ranging in contents from mythological texts to official records, from magical formulas to scientific treaties. He thus had all the sources he needed to write down the history of his country. With such sources, however, we may not be surprised to find myths and folk-tale mixed with the facts of the Egyptian history.
It is to Manetho's Aegyptiaca that we owe the division of Ancient Egyptian history in 30 dynasties. This division is not always based on historical facts: it was in parts based on mythology and in parts on divisions of ruling families already established in the past.
For instance, the 18th Dynasty starts with the rule of Ahmose, who was a brother of the last king of the 17th Dynasty. The third king of the 18th Dynasty was (probably) not related to his predecessors, but yet he is still placed in the same dynasty. This seemingly bizarre composition of the 18th Dynasty can be explained by the fact that with the rule of Ahmose started a new era of prosperity for Ancient Egypt, and thus the ancient record keepers on whom Manetho based his study of the 17th and 18th Dynasties must have considered him the founder of a new house.
The same is true for the first king of the 1st Dynasty, Menes, who probably has to be identified as Narmer: Menes' role in the unification of Egypt was so important, that he too was considered the founder of a new House.
On the other hand, Mentuhotep II reunited the country after the 1st Intermediate Period, but yet he is still counted as a member of the 11th Dynasty.
On other occasions, mythological elements were taken into consideration when dividing the history of Ancient Egypt into dynasties. The separation of the 1st and 2nd Dynasties seems purely artificial, so why did Manetho list 9 kings in the 1st Dynasty and 9 in the 2nd? Because 9 was a holy number: there were 9 gods in the Ennead, all of which once had ruled over Egypt.
Unfortunately, this valuable work has not (yet) been found or identified as such. It is only known through references, occasional excerpt and comments by later authors, the most important of which are Josephus, Africanus, Syncellus and Eusebius. To make matters even worse, the sources through which the Aegyptiaca is known, sometimes represent conflicting information.
Eusebius, for instance, counted only 3 kings in the 22nd Dynasty, whereas Africanus lists 9. The 23rd Dynasty is treated differently by the two classical authors as well: Eusebius listed 3 kings and gave the Dynasty a total length of 44 years, whereas Africanus counted 4 kings and assigned it only 31 years.The 26th Dynasty counted 9 kings with both Eusebius and Africanus, but with Eusebius it starts with a king named Ammeris and ended with Amosis, whereas Africanus names a Stephinates as the first and a Psammetikherites as the last king of that same Dynasty. Psamtek I of the 26th Dynasty is assigned a rule of 54 years by Africanus and 45 by Eusebius...
Soon after the original composition, the Aegyptiaca was epitomised, probably by extracting a framework of kings to which clung the occasional historical statement. At the same time, however, the original work was being abused, commented and falsified for political and religious motives. It is not unlikely that at this time, new works about the history of Egypt were being written under Manetho's name. Such works were often full of tendentious commentaries and anachronisms.
The classical authors who copied, commented or made references to the Aegyptiaca were thus confronted with different sources, all claiming to have been based on the original work. Josephus knew both the original Aegyptiaca or its epitome, and the fake Manethoan literature, but he was often unable to distinguish between them. Africanus knew and used the epitomised Aegyptiaca, while Eusebius quoted from Africanus and from a version of the Epitome altered by the Hellenistic Jews for religious purposes.
This makes the accessibility of Manetho's work very hard, but yet, when one knows how to separate the original work from its fakes, and when one knows to distinguish between fact and myth in the original work, Manetho's Aegyptiaca becomes a valuable source for the study of Ancient Egyptian history.