Usage of italics in writing

The Wikipedia page on Italic type gives a pretty good overview, along with some examples.

• Emphasis: "Smith wasn't the only guilty party, it's true".
• The titles of works that stand by themselves, such as books (including those within a larger series), albums, plays, or periodicals: "He wrote his thesis on The Scarlet Letter". Works that appear within larger works, such as short stories, poems, or newspaper articles, are not italicized, but merely set off in quotation marks.
• The names of ships: "The Queen Mary sailed last night."
• Foreign words, including the Latin binomial nomenclature in the taxonomy of living organisms: "A splendid coq au vin was served"; "Homo sapiens".
• Using a word as an example of a word rather than for its semantic content (see use-mention distinction): "The word the is an article".
  • Using a letter or number mentioned as itself:
    • John was annoyed; they had forgotten the h in his name once again.
    • When she saw her name beside the 1 on the rankings, she finally had proof that she was the best.
• Introducing or defining terms, especially technical terms or those used in an unusual or different way: "Freudian psychology is based on the ego, the super-ego, and the id."; "An even number is one that is a multiple of 2."
• Sometimes in novels to indicate a character's thought process: "This can't be happening, thought Mary."
• Algebraic symbols (constants and variables) are conventionally typeset in italics.
• Symbols for physical quantities and mathematical constants: "The speed of light, c, is approximately equal to 3.00×10⁸ m/s." I've seen all of these usage cases between my reading of fiction and non-fiction texts. In particular, I've seen several authors switch to italics for the length of one or even multiple paragraphs to represent the thoughts of a character. Within such paragraphs, text that is normally italicised is put in regular/upright (Roman) type.

(See also this About.com page, though it says very similar things to the Wiki page.)

Hope that helps.