Most of the time, your Ethernet card will only "listen" for frames addresses to it.
A
packet sniffer will put your
ethernet card into promiscuous mode, where it will listen to
all frames on the wire -- no matter who they are addressed to.
Packet sniffing works best on a shared-medium such as a hub. To do packet sniffing on a switch, you have to configure port spanning, which copies traffic from one port to another.
The way to protect yourself from sniffers is end-to-end encryption. For example, I encrypt my login sessions with
SSH, my AIM sessions with Trillian, and my web sessions with HTTPS.
The ultimate end-to-end encryption is to build a
VPN between yourself and the remote system to which you are communicating.