Your hosts file is a bit like your own DNS server. Before your computer checks with DNS to find the location of "spam.com", it checks the hosts file. If spam.com is listed there with an address of 127.0.0.1, your computer can't get there.
The default hosts file has one entry, the latest MVP (it gets updated, you have to go get it) has like 300-400 entries. The MVP's are Microsoft types who provide a lot of help out on the 'net.
I can get to any site I want to...porn...whatever. The sites that are listed in the MVP hosts file just provide advertising and spyware.
The downside? Often the advertising space of a site will say "page cannot be found" like the top of this screen shot.
The other downside is that some sites show you advertising when you hit the back button. PC World is a good example. So when I hit the back button, I go nowhere as the comuter is trying to go to 127.0.0.1. I have to hit it about 3 times before I finally go back.
The upside is that even when my computer silently tries to go to a site that is known to pump out shit, it can't.
To see more, and download the MVP hosts file, click here. Now they even include a little install .bat, but to install you have to make sure that ZoneAlarm, SpyBot, SpySweeper or something else hasn't locked the hosts file.
After install, lock it again. Otherwise you may soon find that you can't get to Symantec, McAfee, Computer Associates, etc.