Tor is a network of virtual tunnels that allow network traffic to be sent securely and privately around the internet. Privoxy is a web proxy that blocks cookies, and removes ads.
Using Vidalia is very easy. All you need to do is launch the program, and configure your applications to use a local port as the proxy. It is even easier to configure Firefox to use it. Torbutton is a Firefox extension that provides a button that will toggle whether the browser has the network traffic routed through Tor.