What is a keylogger and what does a keylogger do are basically the same question. A Keylogger is a piece of coded software, usually coded for a specific purpose. A keylogged does what it sounds like, it logs your keystrokes and tells the administrator of said keylogger every key you've pressed. Now, whether it's good or bad is a harder question.
It's bad, if you caught it like malware, from a download, and you don't know where it came from. They could get hold of any information you key in, anyway.
It's not so bad, even good, if it has been placed on clients by an administrator, since this can help track the usage of said clients, and relieve the dependance on proxy servers.
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