HOSTS File

The Hosts file contains the mappings of IP addresses to host names. The Hosts file is loaded into memory (cache) at startup, then Windows checks the Hosts file before it queries any DNS servers.  This action enables Windows to override web addresses in the DNS servers your computer is using to look up web addresses. Doing this prevents access to the listed sites by redirecting any connection attempts back to the local machine or localhost. The HOSTS file is also able to block other applications from connecting to the Internet, providing the entry exists in the Hosts file.  You can use a HOSTS file to block ads, banners, 3rd party Cookies, 3rd party page counters, web bugs, and even most hijackers. This is accomplished by blocking the connection(s) that these programs use.

The Hosts file is located here:

Windows XP = C:\WINDOWS\SYSTEM32\DRIVERS\ETC
Windows 2K = C:\WINNT\SYSTEM32\DRIVERS\ETC
Win 98/ME = C:\WINDOWS

For more information on the Hosts File see:

There's No Place Like 127.0.0.1
http://www.mvps.org/winhelp2002/hosts.htm

What is the Hosts file?
http://accs-net.com/hosts/what_is_hosts.html