What is “N” Prefix used with Unicode string?

If your database is multilingual, you are familiar with “N” prefix. Basically, we use “N” character as a prefix for string values when passing them to Unicode data type columns such as nchar and nvarchar. Question is, what is this “N” for?

UPDATE Production.Product

    SET Color = N'Black' -- nvarchar(15)

WHERE ProductID = 1

When this question is asked, most common answer is, “N” is for representing Nchar or Nvarchar. Unfortunately the most common answer is WRONG. “N” is not for Nchar or Nvarchar, it is for “National”.