The Internet is an insecure place. Many of the protocols used in the Internet do not provide any security. Tools to "sniff" passwords off of the network are in common use by malicious hackers. Thus, applications which send an unencrypted password over the network are extremely vulnerable. Worse yet, other client/server applications rely on the client program to be "honest" about the identity of the user who is using it. Other applications rely on the client to restrict its activities to those which it is allowed to do, with no other enforcement by the server.
Some sites attempt to use firewalls to solve their network security problems. Unfortunately, firewalls assume that "the bad guys" are on the outside, which is often a very bad assumption. Most of the really damaging incidents of computer crime are carried out by insiders. Firewalls also have a significant disadvantage in that they restrict how your users can use the Internet. (After all, firewalls are simply a less extreme example of the dictum that there is nothing more secure then a computer which is not connected to the network --- and powered off!) In many places, these restrictions are simply unrealistic and unacceptable.
Kerberos was created by MIT as a solution to these network security problems. The Kerberos protocol uses strong cryptography so that a client can prove its identity to a server (and vice versa) across an insecure network connection. After a client and server has used Kerberos to prove their identity, they can also encrypt all of their communications to assure privacy and data integrity as they go about their business.
Under Kerberos, a client (generally either a user or a service) sends a request for a ticket to the Key Distribution Center (KDC). The KDC creates a ticket-granting ticket (TGT) for the client, encrypts it using the client's password as the key, and sends the encrypted TGT back to the client. The client then attempts to decrypt the TGT, using its password. If the client successfully decrypts the TGT (i.e., if the client gave the correct password), it keeps the decrypted TGT, which indicates proof of the client's identity
Also, Kerberos is a secure method for authenticating a request for a service in a computer network. Kerberos lets a user request an encrypted "ticket" from an authentication process that can then be used to request a particular service from a server. The user's password does not have to pass through the network. A version of Kerberos (client and server) can be downloaded from MIT or you can buy a commercial version.
Authentication is the process of determining whether someone or something is, in fact, who or what it is declared to be. In private and public computer networks (including the Internet), authentication is commonly done through the use of logon passwords. Knowledge of the password is assumed to guarantee that the user is authentic. Each user registers initially (or is registered by someone else), using an assigned or self-declared password. On each subsequent use, the user must know and use the previously declared password. The weakness in this system for transactions that are significant (such as the exchange of money) is that passwords can often be stolen, accidentally revealed, or forgotten.
For this reason, Internet business and many other transactions require a more stringent authentication process. The use of digital certificates issued and verified by a Certificate Authority (CA) as part of a public key infrastructure is considered likely to become the standard way to perform authentication on the Internet.
http://searchsecurity.techtarget.com/definition/authentication
Briefly and approximately, here's how Kerberos works:
The actual process is much more complicated than just described. The user procedure may vary somewhat according to implementation.
http://searchsecurity.techtarget.com/definition/Kerberos
http://briandesmond.com/blog/active-directory-spn-mappings-and-kerberos/
http://web.mit.edu/kerberos/krb5-latest/krb5-1.10.3/doc/krb5-user.html#What-is-a-Ticket_003f