Malware is the word that now covers all the evil bugs that can get into your computer – viruses, Trojans, worms, spyware, adware, etc. “Mal” means bad, so “badware” is essentially anything that can harm your computer.
There once was a time you could avoid malware by simply not opening attachments in email. Then you had to avoid clicking links in emails, so you wouldn't be a victim of a phishing scheme. Drive-by infections on benign websites then became the preferred method of delivering malware. Also infected media has always been a method of malware distribution, starting in the days of floppy disks and graduating to USB flash drives.
All those methods of delivery still exist, but the most common way a computer gets infected today is by invitation of the user! Seems strange, doesn't it, since who would invite an infection into their system?
When a pop-up shows up on your system saying “You are infected – click here to fix” and you click it, you have invited in an infection. This screen is just an image, a video set up to 1) scare you, and 2) make you think it's your own antivirus asking you to “click here”. The damage starts when you click.
This is not your fault – these images are very carefully engineered to look like your own antivirus is sending you a warning. They play on your fear, your responsibility and your familiarity. But it IS your responsibility to protect & educate yourself.
Know your system – if a pop-up says “Windows Security has found infections” and you know you have McAfee antivirus, that is NOT your product warning you. Know the name of your product – McAfee, Microsoft Security Essentials, Norton, AVG, etc. That name MUST be in the warning for it to be legit.
Stop and think before you click – the warning is trying to get you to panic, and if you panic you won't think things through before you “click to fix.” Heck, those warnings make ME panic, they are pretty scary!
If you see one of these warnings, don't click anything – just shut down your machine without even trying to click out of the warning window. Then turn it back on – chances are good you got away. But if you didn't get away, call for help before the infection gets too big or starts to infect your friends.