I'm not Larry....but I'll chime in. Microsoft Security Essentials is better than not having anything, it's free, and updated regularly.
There are more sophisticated packages, and will do more exhaustive checks. If you are a relatively savvy computer user, MSE should be fine.
A lot of malware is installed through Social Engineering...or convincing you to install software through deception. Malware can slow down or destroy data on your computer, or get personal information from it.
The biggest issue will be exploits that install software without your knowledge, making your computer part of a botnet. They're tough to avoid and the scammers are getting really sneaky with the tricks they use to gain control of your computer. For them, it's about money, as they sell time on 'their' botnet to distribute SPAM, other Malware, or for use in various attacks such as Denial of Service attacks where they try to blackmail someone doing web commerce or put competition out of business. Botnets can also steal information from the computers they have infected, and that can lead to identity theft.
All this may seem complicated if you haven't been exposed to it...here's a decent explanation of what one is: http://en.wikipedia.org/wiki/Botnet
Many AV scanners don't do a good job of inspecting for Bot malware, and there are specialized tools for searching for and removing Bot malware from your computer.
This is just a small subset of what can happen out there if you don't use some kind of protection, and pay at least some attention to what you are doing. Needless to say, if you go to websites that are not mainstream, you increase your chances of being infected.