How do patents become "essential patents"? Do the companies submit them to become standards or are they deemed "standard" based on their nature? Are peripheral patents more powerful than essential ones in patent disputes?
The short answer is that an essential patent is a patent that covers technology required to implement a technology standard.
Often, it is used more specifically to refer to patents owned by companies that work together to create a standard, and agree to license their "essential patents" to other people who are implementing the standard. But in some contexts "essential patents" can also refer to patents held by third parties that did not participate in the drafting of the standard.
Every standards body has slightly different definitions of what constitutes an essential patent. For example, the W3C patent policy says:
"Essential Claims" shall mean all claims in any patent or patent application in any jurisdiction in the world that would necessarily be infringed by implementation of the Recommendation. A claim is necessarily infringed hereunder only when it is not possible to avoid infringing it because there is no non-infringing alternative for implementing the normative portions of the Recommendation. Existence of a non-infringing alternative shall be judged based on the state of the art at the time the specification becomes a Recommendation.
You can see by reading this where things might change from standards body to standards body: what does it mean to be "necessarily infringed"? (Some standards bodies don't define this at all, or use slightly different definitions.) When might we analyze whether something is necessarily infringed? And so on.
Third parties who did not participate in a standards body process can also sometimes be said to have an essential patent, depending on how the term is being used. For example, BT's supposed patent on hyperlinking (if it had been upheld) would be an "essential patent" for HTML in at least some senses of the term, because no one could implement HTML without infringing it. But unless BT had agreed to license the patent as part of the standards body that defined HTML, then in many formal settings the patent might not necessarily considered an essential patent.
Exactly who has to license their essential patents also varies from standards body to standards body. Generally speaking, all participants in the creation of the standard will agree to license their relevant patents, but some standards bodies allow patent owners to withdraw from a process at certain points, or publish specific patents that are excluded from the process. Again, figuring out the exact answer can result in litigation: for example, Rambus spent almost all of the '00s engaged in litigation with various parties over whether or not Rambus should have licensed their essential patents in certain RAM standards to various RAM manufacturers. Deciding who has to license which patents is usually a matter of interpreting the specific terms of the standards body's legal agreements. It can also become an antitrust issue under certain conditions, in particular where the holder of the essential patent is not part of the standards body (as in the BT example above).
Finally, the exact terms of how the patents must be licensed can also vary from standards body to standards body. For example, W3C requires royalty-free licensing (see point 5), while many other standards bodies require "reasonable and non-discriminatory" licenses - which requires interpreting what "reasonable" means. Some standards bodies only require licenses be granted to companies that write "compatible" implementations, which requires understanding what is or isn't a compatible implementation.
Bottom line: there is no one answer for what an essential patent is; it varies from standards body to standards body, can be influenced by antitrust considerations, and in some cases can be used more broadly to mean "any patent that is necessary to implement a standard, whether or not the patent holder participated in the creation of the standard."