Firewalls can be tricky to understand. I have met many people who do not know what the purpose of a firewall is. Since the firewall included in Mac OS X is also disabled by default, most people are alarmed when they discover it. However, in most cases, this is nothing to worry about.
The purpose of the software firewall in consumer-grade computers is to block incoming virtual connections from the network the computer is connected to. Depending on the situation, this can be a good or a bad thing. Allowing unknown entities to connect to your computer is never a good thing, but a connection to your computer can only be established if there is an application already waiting to receive it. By default, Mac OS X has far fewer applications running in the background of the operating system that can accept virtual connections than Windows does. This is why the firewall is disabled by default in Mac OS X, and not in Windows. It is also part of the reason why Macs have a reputation as “more secure” than Windows computers.
If a firewall is activated on a computer, it can cause issues for the user that would not occur without it. Some legitimate applications may not work correctly from behind a firewall, because they rely on input from remote servers. Typically, the firewall will prompt the user to allow or deny the connection if such a connection is detected, but this can be irritating for the user and will not increase security in many cases because most users will blindly allow every connection.
Most Mac users will never encounter a situation where it will be necessary to enable the firewall. In most situations, the firewall should only be enabled if the user is trying to run an application which is known to communicate freely with the Internet, and the user wants to disable this functionality. If you do want to turn on the firewall, this can be done in the Security & Privacy panel of System Preferences.