Sometimes the "payload" of the virus is a dumb prank, like one that makes your screen turn upside down or shake like an earthquake.  Usually the plan is much more insidious, and the virus is designed to erase your hard disk, or allow your computer to be taken over by the bad guys to attack other computers.  These types of virus typically email themselves to EVERYONE in your Microsoft address book.  Since the message looks like it is coming from "you" (not really) your friends and family might fall for it, and click the attachment, which will infect them...and everyone in their addressbooks...and it goes on and on.

There are a few different ways to protect yourself from computer viruses.
The most effective is to never connect to the internet, never go to websites or receive email, and never install any software on your computer, or even put a floppy in the drive.  Those are the ways you can get viruses.  However, this is not too much fun, so let's look at other ways to protect yourself.

1. NEVER open attachments on emails from people you don't know.
2. Don't open attachments from people you do know, unless you know what it is.  Their email client may be carrying out the instructions of a virus.
3. Install a modern virus protection software and use it.  This software will scan your emails, downloads, and monitor your system for possible viruses.
4. Update the "virus definitions" that your software uses.  Once a week is a good schedule, but if you hear of a new virus, go get a new set of definitions as soon as possible.

Currently, according to Trend Micro, the top five viruses "in the wild" are 
1.  PE_FUNLOVE.4099 
2.  WORM_LOVGATE.C 
3.  W97M_ASTIA.AA 
4.  WORM_KLEZ.H 
5.  WORM_LOVGATE.B 

WEB BUGS
These nasty critters are designed to track and notify someone (gosh knows who) about whether or not you viewed a particular webpage or read a particular email message.  Most people don't even know they exist!!  The way it works is the spy (the person who wants to track you) inserts an image into the webpage or email with special characteristics.  Here is an example of the coding an old web bug:

<img src="http://ad.doubleclick.net/ad/pixel.quicken/NEW" width=1 height=1 border=0>

The reason it's a "bug" is because even though this was on the quicken.com website, it is allowing the company who runs the doubleclick.net server to know whether and when you viewed the webpage at quicken.  It's sneaky because it's a 1 pixel by 1 pixel image, and is probably "transparent" with no color.  You wouldn't even notice it on the webpage.

There is a very good FAQ (frequently asked questions) list about web bugs* at the website of the Electronic Frontier Foundations (http://www.eff.org/Privacy/Profiling_cookies_webbugs/web_bug.html)

Some privacy software (like ZoneAlarm Pro*) will "disable" these bugs.  Zone Alarm tracks what kind of outbound connections your computer is making, and disallows the bad ones.

Spyware is often distributed as "Advertising Supported Software" and involves ad banners.  Whenever the banner changes, a piece of information is being sent about you and you web activities.  This information is sometimes (but not always) buried deep in the software agreements that almost no one reads.

Sometimes, you have no way to know whether a program is spyware. 

I found a good list of example spyware at *http://www.pcnineoneone.com/howto/spyware1.html
Here are a few examples of common spyware programs and what they do: 

• Gator's webform completion and password saving software includes offercompanion, which is advertising software, tracking your surfing habits, sending info home, and displaying ads. It is also said to replace website's advertising with its own. 
• Download programs like NetZip's Download Demon, Netscape/AOL's SmartDownload, and Real Network's RealDownload keep track of every file you download and assign you a unique ID number, enabling them to keep a detailed record of any files you download off the Internet. 
• Aureate/Radiate secretly installs itself, tracks information, has the capability of installing additional software without your knowledge, hides itself, and is responsible for browser crashes. 
• Ezula's TOPText/ContextPro/HOTText inserts ads in web pages that you view without your or the web site's webmaster's consent. 
• Peer-to-peer file sharing software such as Kazaa, Grokster, Limewire and the likes have been known to secretly install spyware on users' machines that collects and sends personal data to another web address. 
• Other names you might recognize that also fall into this category are CometCursor, BonziBuddy, Alexa, RealJukebox, and many more.