In addition to fpgaminer's excellent explanation, I highly recommend the book "Cryptography Engineering: Design Principles and Practical Applications" by Niels

In addition to fpgaminer's excellent explanation, I highly recommend the book "Cryptography Engineering: Design Principles and Practical Applications" by Niels Ferguson, Bruce Schneier, and Tadayoshi Kohno. It's an excellent overview of how to use crypto primitives and why to use them that way.