It’s a cruel irony in information security that many of the features that make using computers easier or more efficient and the tools used to protect and secure the network can also be used to exploit and compromise the same computers and networks. This is the case with packet sniffing.
A packet sniffer, sometimes referred to as a network monitor or network analyzer, can be used legitimately by a network or system administrator to monitor and troubleshoot network traffic. Using the information captured by the packet sniffer an administrator can identify erroneous packets and use the data to pinpoint bottlenecks and help maintain efficient network data transmission.
In its simple form a packet sniffer simply captures all of the packets of data that pass through a given network interface. Typically, the packet sniffer would only capture packets that were intended for the machine in question. However, if placed into promiscuous mode, the packet sniffer is also capable of capturing ALL packets traversing the network regardless of destination.
By placing a packet sniffer on a network in promiscuous mode, a malicious intruder can capture and analyze all of the network traffic. Within a given network, username and password information is generally transmitted in clear text which means that the information would be viewable by analyzing the packets being transmitted.
Read more: here