In 1914, Austria-Hungary was one of the great powers of Europe, along with Germany, Russia, France, and Great Britain. The Austro-Hungarian Empire was a large, multi-ethnic state, and its ruling Habsburg dynasty had ruled over much of Central Europe for centuries. The Habsburgs had always been close allies of the German ruling House of Hohenzollern, and the two dynasties had intermarried many times.
In the early 1900s, the Habsburgs faced a number of challenges to their rule. The Austro-Hungarian Empire was a patchwork of different ethnic groups, and many of these groups (such as the Slavic peoples) were seeking independence from Habsburg rule. At the same time, the rise of the new German Empire under Emperor Wilhelm II was posing a challenge to Austrian power and prestige.
Against this backdrop, the assassination of Archduke Franz Ferdinand, heir to the Austro-Hungarian throne, in Sarajevo in June 1914 was a major blow to the Habsburgs. Franz Ferdinand was a popular figure, and his death was a shock to the Austro-Hungarian people.
The Habsburgs were quick to blame the Serbian government for the assassination, and they used the incident as an excuse to launch a military campaign against Serbia. This campaign, however, quickly escalated into a full-scale war when Russia intervened on Serbia's behalf.
The First World War was a disaster for Austria-Hungary. The Empire was defeated and dismantled, and the Habsburg dynasty was forced into exile. The war also led to the rise of the German Empire as the dominant power in Central Europe.
The assassination of Franz Ferdinand, and Austria-Hungary's alliance with Germany, were both major factors in the outbreak of the First World War. The war was a catastrophe for Austria-Hungary, and it led to the demise of the Habsburg dynasty.