A packet sniffer is a utility that has been used since the original release of Ethernet. Packet sniffing allows individuals to capture data as it is transmitted over a network. This technique is used by network professionals to diagnose network issues, and by malicious users to capture unencrypted data, like passwords and usernames. If this information is captured in transit, a user can gain access to a system or network.
How can I protect myself?
To keep information confidential, use encrypted connections. You might also consider encrypting all sensitive data being sent over the Internet or network (e.g., e-mails). For example, e-mails can be encrypted using PGP, anyone still using Telnet should consider using SSH instead, and instead of FTP you can use SFTP.