Its all about folding proteins, the way they fold in your body as they change shape. Apparently they change very very quickly, and occasionally, yes, they get it wrong. The whole point of simulating this, is to understand where and how they go wrong basically. So teh whole concept of folding on your pc is just simulating the changes that millions of proteins make every second.
It basically uses spare computing power to help in trying to find a cure for diseases. It's extremely beneficial. I've always used BOINC as it has a wide range of different workings (i.e. mapping the Universe, finding large prime numbers as well as the usual disease ones). Can't say I know what I'm doing with this Folding@Home client though.... I have no idea if it's working or not.
For unfamiliar users, or those that still need most of their computer's prcessing power, the simple GUI client that only uses one core is best suited. For those that want to use every single core/thread, the SMP client needs to be used.
Then of course theres the GPU, GPU3 client is the latest one.
Nvidia GPUs will thrash ATI GPUs at this as the client makes full use of the CUDA technology.