There are roughly 100,000 Pilot Whales living in the sea around the islands, the Faroese people catch maybe 800 of these a year. They're very careful in ensuring the population stays at a constant level (relatively speaking) and the meat and oil is shared out only to those who participated in the hunt (except on the islands of Sandoy and Suðuroy only the residents get what's caught. It is essentially fishing, because there are just under 1,000,000 Pilot Whales in the Atlantic Ocean at any given time, it's incredibly strictly regulated. It's because they're called Whales that people kick off, if they were called Pilot Carp nobody would give two ****s.
They've been hunting them since the 13th Century so it is a big tradition, but it makes up almost 25% (so I've been told) of their produce and the meat lasts them for months. With the islands being quite remote, it provides food, warmth and other materials that they might otherwise not have ready access to. I think it's great and I've seen (but not been on) a couple, it's like a festival.
I can see why activists get pissed off about it, but it's strictly regulated and there are a lot of laws surrounding it to make sure the whale popultion stays at a healthy level and that it is (to their best) at least a little humane.