So this is how things work at my school, in my option (we have divisions where others have schools and options where other people have departments; it is an odd place).

For the vast majority of people, the first year is about coursework and trying to find an advisor. The second year is about starting to do research and finish classes, and theoretically, taking the candidacy exam. However, since there are essentially no rules that must be followed here, many people wait for their 3rd or 4th year to take their candidacy exam (if not later).

That is, there is no fast rule about when to take this exam. In our group, there is something of a tradition in doing it winter of the 3rd year.

The candidacy exam in my option is an oral exam in front of >= 4 professors. It consists of a ~30 minute talk on your research, plus questions, and, at the discretion of the examiners, questioning on your coursework.

Currently, I am working on some research. Another dude in my group, my office-mate Matt, is starting his 4th year. We're working as a team, busting down all kinds of world records. We're opening up a lot of ground, so much so that there's too much work for the two of us to do. We are, nonetheless, gonna do every bit as much as we can. That entails a good deal of research, explaining my lack of summer break.

I'm busting my rear these days, and it sucks because I terribly need a break. Still, things are going pretty well. I'm trying to get a pretty significant body of work prepared for that exam, and that takes time.