The For Dummies Web site has a very interesting article by Kevin Beaver, author of Hacking for Dummies, 4th Edition. He not only explains how hackers can snag your passwords, but how you can protect yourself.
Password cracking is one of the most enjoyable hacks for the bad guys. It fuels their sense of exploration and desire to figure out a problem. A hacker can use low-tech methods to crack passwords. These methods include using social engineering techniques, shoulder surfing, and simply guessing passwords from information that he knows about the user.
PYBT for the complete story: How Hackers Crack Passwords