The National party is the result of a merger brokered by Doug Anthony of the National and Country parties back in the 1960's. It has always been a rural constituency but has been in coalition with the Liberal party for many years because of a shared conservative outlook. They are effectively a third party in hiding; while their vote is marginal (and getting more marginal by the year), the proportional voting system allows them to direct preferences to their partners to the detriment of the primary vote of their opponents.
The Nationals have a similar structure to the Labor party oddly enough. Their caucus determines the direction of party policy and elects the leader. They are strongly branch-driven like Labor also; the parliamentary branch are answerable to the state branches, which makes their coalition position even weaker.
Their city vs rural mantra, while appealing, has lost force due to their inability to force their coalition partners to further their agenda. To add salt to this wound, the Liberals have increasingly poached their constituency, giving rise to Liberals campaigning against their National partners and winning their seats. Their lack of agenda is such that they are practically invisible in the current 2007 election; unheard of in a time of drought, climate change, and global export markets.
Between them Bob Katter and John Howard have marginalized the Nationals to the point they are barely heard from; the last two National leaders, while given prominent Ministries, have been totally unable to advance their own agendas. It is likely that to survive, the Nationals will have to bite the political bullet and leave the coalition, if the current election doesn't destroy them federally. The trend towards preferring independents in rural seats over National or Liberals is likely to continue, even in Queensland which admittedly is home to a special breed of National. In State politics the Nationals are on firmer ground but their seats are also on the Liberal agenda and they will have to fight hard to keep them.
The 2007 Federal election resulted in the National party reduced to 9 House of Representative seats, and the departure of Mark Vaile as leader and possibly as a sitting member. When asked why should they not merge with the Liberals, he replied that a new rural party would rise to take their place. Given that the Coalition is unnecessary to the Liberals and that the direction of Australian politics is anti-rural, this is wishful thinking.
In the 2010 election, this was again reduced to 6, with 3 seats in the Senate. They may well be gone by 2013.