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It's not like defragging, and the permissions stuff is Unix jargon. Essentially, every file has associated with it info about who can read/write/execute a file, and this information can become corrupted. Fixing permissions is essentially correcting any damage to that info that may have occurred.
 
On any *nix OS, like Mac OS X, every application, file and folder has an owner and a permission. This determines who has the right to read, execute or write to those files, and this is an important security feature in these OSs. Unless you have root/administrator privileges, you cannot touch any files/folders that doesn't belong to you unless the owner of the files (which may be the system itself) permits this.

Every now and then - often by dodgy 3rd party installers, but most recently by the iTunes 7 installer - these ownerships and/or permissions of some files and folders gets messed up, and this might cause programs to misbehave (refuse to start, work slowly, miss features, etc). By repairing the permissions you reset these to what they should be (according to your system).
 
A quick newb question since we are talking about security: I have a hunch that the permissions *Nix feature is why viruses and stuff is unable to install itself on Mac OSX? Or is it totally wrong?
 
It's definitely a part of the story; there are some files, for example, which are owned by the system, and which a user is prevented from modifying.
 
Nothing can go wrong when repairing permissions can it? Are there any mandatory steps to be taken when carry out such a task? i.e. removing all external hard drives usb sticks etc??
 
Since i got my MBP in July i have installed quite a lot of stuff. Im starting to see that spinning colour wheel more and more even with 1Gb RAM. If i repair permissions (which i never got round to doing before) will it help address this issue atall? Or am i just clutching at straws?
 
Well, it can't hurt, but probably won't help. Why don't you have a look at the Activity Monitor app (in the Utilities folder) to see what's causing the hangs?
 
IMO the reason permissions get overwritten incorrectly so often is due to PackageMaker (the Mac installer package builder) being painfully inadequate. It is so very easy to muck up the permissions, and so difficult to detect, especially if it's a large, complex installation.

It doesn't surprise me in the slightest that even the iTunes installer can get it wrong.
 
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