First, for some background I would recommend Michelle Shephard's piece in the Toronto Star.
As for al-Awlaki (I prefer the spelling al-'Awlaqi which more closely represents the Arabic - it is a qaf not a kaf) he was born in New Mexico and has US and Yemeni citizenship. His father was a member of the al-'Awlaq tribe from Shabwa. But his son, Anwar, is much more a product of the US than he is of Yemen. He spent most of his life in the US and it was only after September 11 that he moved to Yemen for good.
He was arrested - the reasons are varied, depending on the sources - and eventually released, although at one point his name showed up on a list of more than 100 prisoners that al-Qaeda in Yemen was seeking the release of from local prisons. In July of this year, he publicly praised al-Qaeda on his website following a clash between Yemeni security forces and al-Qaeda supporters in Marib. This understandably caused some friction between himself and the government.
In my opinion, he is not a major player within the Yemeni arena, but rather someone who uses his Yemeni background to bolster his credentials for non-Arabic speaking Muslims primarily in the US, Canada and Europe.
It is unclear exactly what his location is at the moment, but according to some local Arabic reports I have seen from late October the government is now looking for him, which would suggest that he is likely not at his home in San'a, or if there he is not receiving visitors as Michelle Shephard found out.