What does the Flashback malware do?
From Wikipedia:


  The Trojan [FlashBack] targets a Java vulnerability on Mac OS X. The system is
  infected after the user is redirected to a compromised bogus site,
  where JavaScript code causes an applet containing an exploit to load.
  An executable file is saved on the local machine, which is used to
  download and run malicious code from a remote location. The malware
  also switches between various servers for optimised load balancing.
  Each bot is given a unique ID that is sent to the control server.. The
  trojan, however, will only infect the user visiting the infected web
  page, meaning other users on the computer are not infected unless
  their user accounts have been infected separately, this is due to the
  UNIX security system.


For a lengthier, more technical description, read this F-Secure article.