MD5 can be used to encode a value of an arbitrary length into a 128-bit value that cannot be reversed to determine the original clear text.
MD5 is commonly used as a mechanism for checksumming data, and it is also commonly used for encoding passwords and other sensitive information.
Weaknesses in MD5, however, reduce the requirement to just 215 (or 32,768) for a collision or 239 for more powerful chosen-prefix collisions, in which an attacker can choose different message inputs and add values that result in them having the same hash value.
These discoveries do not directly impact the security of the way that the MD5 algorithm is used, but nevertheless it may be wise to use a stronger mechanism like the Secure Hash Algorithm.
The Unofficial Home Page for MD5 has several links for further information.