First of all, what it is and when it appears: if you are running a Microsoft OS and a system or program error occurs, you will most likely be faced with an error report. Also, if a system error occurs that results in the computer displaying a Stop error, the Error Report dialog box is displayed when you reboot the PC. Error reports basically send a chunk of anonymous information to Microsoft about what went wrong so they can "find and fix problems in the software you use. It is not used for marketing purposes." Microsoft does give you the option of seeing what the error report contains, but this basically consists of a link to "our data policy on the web". From said policy:
"When collecting information, it is possible for personal or confidential information to be present in the report...If you are concerned that the report may contain personal or confidential information, please do not send the report...Microsoft employees, contractors and vendors who have a business need to use the error report data are provided access. If the error report indicates that a third-party product is involved, Microsoft may send the data to the vendor of that product, who may in turn send the data to sub-vendors and partners...The type of data and amount of data we request is dependent on the severity of the error and relevance of the data to troubleshooting the problem."
When the send error report window appears you are faced with two choices: "Send Error Report" and "Don't Send". If you choose "Don't Send" you can get on with your life. However, if you click "Send Error Report" it is an entirely different matter, although the user is not expected to do anything else to 'help' - it gets on with itself quietly in the background.
First it will start "Preparing error report" - this took roughly five minutes when I crashed a game for the purpose of timing it, although this will have been on the smaller side (I am told smaller programs such as Word or Excel take much less time than this to generate the error report - thanks rootbeer277). Then, assuming it can connect to the server (requiring an Internet connection), it will "Check for the status of this problem" (both of these were almost instantaneous, but I have a reasonably fast broadband connection). This is the final stage of the error report, after which the error report is complete.
You may be given the chance to fill in a post-report survey or to track your report. Both of these are optional and mean your report will be associated with any phone number/email address you give, removing your anonymity.
Microsoft gives a list of the different types of data collected, "but [it] is not an exhaustive list". This includes:
Rather a lot of stuff then, potentially at least, eh? IMHO, this is all rather ominous. It is, we are told, so that Microsoft can remove bugs and so on (not because they are spying on us). This is almost certainly kind of true, and reasonably necessary in programs as widely used as much of Microsoft's merchandise.
Microsoft Data Collection Policy: http://oca.microsoft.com/en/dcp20.asp
sam512 asks how do you turn them off? In XP go to control panel>system>advanced>error reporting and there is a disable option. In 98, go to Add/Remove Programs in the control panel, select Internet Explorer Error Reporting and remove. (many thanks to hapax and timgoh0)