DISCLAIMER: I am not an expert at cryptology. But I generally understand the industry best practices and have implemented this stuff on several sites. That said, read on at your own risk :)
There's been a lot of talk about LinkedIN passwords getting stolen. It's an interesting read and it made me think it would make for a good blog post.
If you read the link above you will see them referring to hashed passwords. First of all, nobody should be storing passwords in a data base as clear text. Never, ever, nope. You want to store the password after it's been hashed with a one-way hashing algorithm. One-way just means it's computationally impractical on todays computers to go the reverse direction from hashed string back to password.