Without getting to nerdy about specifics, it creates files on your hard drive that are used to mail copies of the email to everyone in your email address book, as well as any other email addresses that it finds in your inbox and other email boxes.
Also, if you have Windows NT/2000/XP it will install a backdoor in your computer so that hackers can remotely control your computer.
I may sound like a broken record here, but BUY virus protection software and UPDATE it daily. And also what Parker said. If you didn't ask someone to send the attachment, at the very least verify with the sender that they intended to send it and, better, just delete it without asking.
There are a number of people out there who find it necessary to forward and reforward jokes attachments all over the place, presumably because they are not funny on their own. It is folks like these that make viruses like this so successful. People get used to getting frivolous attachments from these people, and what's even better is that these people usually have extensive address books for the virus to work off of.
.end of rant.
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