Hia,
keyloggers r software progs tht,when installed on a system..save all the keystrokes of tht particular system into log files tht may/may not be encrypted.
A keylogger generally harms u only when smone else has *planted* it on ur system to monitor ur activities( Online as well as Offline )..else the only way it can harm u is by 'taking up ur precious CPU'.
These days..we've Remote Installation keyloggers which can be remotely sent to the victim to be installed onto his/her comp without 'em knowing.
It saves all the keystrokes(including passwords n all ) into a log file and may send these logs to the remote-hacker ..who in turn can get all ur info.
Keyloggers these days hve an option to download some other files directly from the internet ( thru urls generally given by the hacker) and get them executed..which can ..pretty obviously be extremely hostile n dangerous for ur system.
Examples of such keyloggers r perfect keylogger,golden keylogger & Sc keylog.
Use google and find more info ..!!