Keystroke loggers take the form of hardware or software that record the keyboard activity of the target system. There's an interesting article discussing both hardware and software keystroke loggers on the InternetSecurityOnline blog.
Reading the article led me to conduct a little ad hoc research to grasp the prevalence on keystroke loggers. I browsed to a popular software download site (download.com) and searched for "keystroke logger" - thanks to the site for the following titles and download statistics
Note: I am NOT suggesting that either the site or software described below has malicious intent.
Note: The vast majority of keylogging software was available for download free of charge.
Incidentally hardware keyloggers are available for less than £100 per unit from many legitimate online retailers - each has sufficient storage capacity to capture many thousands of key presses.
The statistics suggest that there are a great number of people who don't trust the users of their PCs! IMHO the right to privacy is a fundamental human right.
Generally speaking I worry more about keyloggers that are installed by unknown malicious third parties than those installed by authorised users. It's worth considering that the PC you use to pick up your email and conduct your banking and shopping activities may have been compromised by keylogging hardware or software.
Network security technologies including the padlock you see in your web browser (signifying encryption and server authentication via Secure Socket Layer) may be rendered useless if your keyboard input is captured by a keylogger.
Personally I only enter sensitive information into computers that meet the following requirements:
I do not read my corporate or personal email from kiosk computers as I am unable to assert that these conditions are met.
http://www.keelog.com/ do a hardware key logger for 27 Euros, and have details of a DIY kit.
Of course the relative scarceness of front panel keyboard sockets makes it easier to slip such devices in unnoticed. Although once your physical security is gone most bets are off anyhow.
Most of the online banks have added "picklist" dropdowns for a second level password as a measure to reduce the keylogger threat; doesn't solve the problem entirely though.