I'm not simply going to parrot what everyone else has said, because that is what an honest review would be, stating how brutal and amazing the fight scenes are, how well put together it is, and how much action they manage to pack into 100 minutes. I want to look at what actually made it a better action movie than anything from the past 10 or so years. I'm not saying the Matrix is a better film than it, or a better action film, but it is definitely a contender, even if only in its own genre.
One of the most important factor in any film like this is the pacing, how much action to how much plot, or if you want to get really awesome integrate the plot into the fight scenes. The Raid has maybe 5 minutes to show us the characters and set up the basic plot, they're taking out a crime lord. We also get an establishing scene of our villain, calmly executing 5 dudes as he eats his breakfast. After this there is about 20 minutes of efficient SWAT team action, then a kid shouts "policia", and it all goes to hell. These opening bits are fairly tense, and builds up the anticipation for when the fighting actually starts.
Some members of the team get sniped, others are simply brought down by a horde of bullets, but it's basically a systematic destruction of the seemingly invincible team you'd seen previously, which just goes to show how badass the survivors are. The gunplay here is not the greatest, though it is not bad, but one of the scenes that happens next is probably the best in the film, and showcases why the whole thing works so well.
Our hero rookie is alone aside from a crippled soldier he had brought with him, when suddenly he is attacked by a huge number of people in a fairly close hallway, then he takes out a baton and a knife and effectively murders all of them. In most other action films, especially the neutered ones of recent times, he would simply use the baton beating them to unconsciousness, but here he brutally murders many of them, slicing across throats and stabbing in heads, because he needs to to survive. It's the desperation which is clearly shown by brutality, in effect the action helps to dictate characterization, it's not just action for actions sake. It is the same for the 'mad dog' character who tosses away a gun to fight with his hands, and ends the fight by breaking a guys neck in a display of incredible strength.
Finally the Raid works because it knows exactly what it is, and exactly when to interject humor. Action movies have pretty much always had comedy elements, but with a movie with so many tense moments like this it is difficult to know how much and when to use these elements, but the Raid manages it wonderfully. Just after an intense fight and falling out a window our protagonist arrives in a room with a woman doing drugs and she asks very simply 'who the hell was that' as he runs out of the room. Its moments like these where the incredibly deliberate pacing and expert knowledge of comedy that make the Raid great.
The Raid is quite simply the best action movie in a long time, because it is paced so expertly, something many films like the most recent Die Hard have missed, and it understands the brutality of violence, and doesn't shy away from it at all, only shying away for dramatic effect, not because it is scared. When a film is such pure adrenaline fueled action it has to be great or awful, and with great cinematography, and choreography the Raid manages to outperform all expectations and deliver in what may be one of the most intense fight scenes ever for its conclusion, and it does it without explosions.