We have studied the afterglow of the gamma-ray burst (GRB) of February 18, 2006. This is a nearby long GRB, with a very low peak energy, and is therefore classified as an X-ray Flash (XRF). XRF 060218 is clearly associated with a supernova -- dubbed SN 2006aj. We present early spectra for SN 2006aj as well as optical lightcurves reaching out to 50 days past explosion. Our optical lightcurves define the rise times, the lightcurve shapes and the absolute magnitudes in the U, V and R bands, and we compare these data with data for other relevant supernovae. SN 2006aj evolved quite fast, somewhat similarly to SN 2002ap, but not as fast as SN 1994I. Our spectra show the evolution of the supernova over the peak, when the U-band portion of the spectrum rapidly fades due to extensive line blanketing. We compare to similar spectra of very energetic Type Ic supernovae. Our first spectra are earlier than spectra for any other GRB-SN. The spectrum taken 12 days after burst in the rest frame is similar to somewhat later spectra of both SN 1998bw and SN 2003dh, implying a rapid early evolution. This is consistent with the fast lightcurve. From the narrow emission lines from the host galaxy we derive a redshift of z=0.0331+-0.0007. This makes XRF 060218 the second closest gamma-ray burst detected. The flux of these emission lines indicate a high-excitation state, and a modest metallicity and star formation rate of the host galaxy.