A side story bridging Parts I and II that reaches back to the Third Shinobi World War to reveal how Kakashi Hatake came to possess the Sharingan. It follows Team Minato, the loss of Obito, and the gift that made Kakashi the Copy Ninja.
Positioned as an intermission between the manga's two halves, this arc, subtitled A Boy's Life on the Battlefield, was later adapted into two Shippūden episodes, 119 and 120. Its purpose is to explain the origin of Kakashi's Sharingan. In the manga it sits after the Sasuke Recovery Mission and before the Kazekage Rescue Mission, while the anime slots it into the middle of the Itachi Pursuit Mission. The story centres on a young Kakashi alongside his teammates Obito and Rin under Minato's command.
During the Third Shinobi World War, the newly promoted Kakashi receives gifts from Minato and Rin, while the perpetually late Obito arrives empty-handed and vows to one day awaken his clan's Sharingan and surpass him. Their mission is to cross war-torn Kusagakure and destroy a bridge that supplies enemy forces. Kakashi's reckless attempt to test his new Chidori nearly gets him killed, and Minato must intervene, later warning him against the technique's fatal blind spot and explaining the shame that drove Kakashi's father to suicide, which hardened the boy into a rules-first shinobi.
When Iwagakure ninja capture Rin, Kakashi insists on completing the mission, but Obito breaks away to save her, declaring that abandoning a comrade makes one worse than trash. Kakashi soon follows and loses his left eye shielding Obito, whose fear finally gives way to a first awakening of the Sharingan. In the rescue, a collapsing cave crushes the right half of Obito's body. Dying, he has Rin transplant his remaining Sharingan into Kakashi as a belated promotion gift, telling his friend to let the eye help them all live on.
Kakashi emerges from the rubble bearing the Sharingan and a new scar, and with it he perfects the Chidori and cuts down the remaining enemy. Minato arrives too late to save Obito but in time to aid the survivors, and the team destroys the Kannabi Bridge as planned. From that day the world knows Kakashi as the Copy Ninja. In the years that follow he quietly absorbs Obito's habits, chronic lateness, flimsy excuses, and above all the belief that teamwork outweighs the rules, visiting the Memorial Stone each morning in his lost friend's honour.

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No, Kakashi Gaiden is not filler. It is a canon side story from the manga, spanning chapters 239 to 244, that was later adapted into two Naruto: Shippuden episodes.
Kakashi Gaiden was adapted into episodes 119 and 120 of Naruto: Shippuden, where in the anime it is inserted into the middle of the Itachi Pursuit Mission.
Kakashi Gaiden spans six manga chapters, from chapter 239 to chapter 244, subtitled A Boy's Life on the Battlefield.
Kakashi loses his left eye while shielding his teammate Obito during their mission to destroy the Kannabi Bridge, an injury he suffers while rescuing Obito from captured Iwagakure ninja.
Dying after a collapsing cave crushes the right side of his body, Obito has Rin transplant his remaining Sharingan into Kakashi as a belated promotion gift, asking his friend to let the eye help them all live on.
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