Computers sharing an ethernet are like phones sharing a phone line. When you pick up one phone, you can hear someone speaking on another. To carry on multiple conversations, computers speak in brief bursts, called packets. Each packet contains a header that specifies, among other things, what computer sent the packet and what computer should receive it.
Normally, computers are configured to ignore any packets on the ethernet that they aren't supposed to receive. However, there are programs called ``packet sniffers'' designed to listen for other packets. These programs are useful diagnostic tools, but can also be used to sniff out the packets you send to a remote host when you telnet to it and type your password.