You may store up to 2GB on a free account; extra space costs $10 per month or $100 per year per 100GB (cheaper than but a bit pricier than Mozy).
You download an application (for Windows, Mac, or Linux) that coordinates which files and folders to back up, and runs in the background to sync your online backup with your PC. The password that you create never goes to the SpiderOak servers; it's stored on your PC. Your password then serves to generate a pair of encryption keys, which also remain local. The keys work to encrypt your files on your PC before the data goes to the SpiderOak servers--without your password or keys, no one can view your data without cracking the encryption via brute force.
This hands-off approach means that every time you log in to SpiderOak, you're just verifying your identity to the desktop client, which in turn establishes a secure connection to the SpiderOak servers. As long as you never log in via SpiderOak's website or a mobile device (in addition to the desktop tools, SpiderOak offers mobile and Web clients for convenience), your password will never enter SpiderOak servers, so theoretically it's difficult for a SpiderOak staffer to peek at your data or give it to a third party.
SpiderOak calls this a "zero-knowledge" privacy policy, and it makes life difficult for anyone who attempts to subpoena SpiderOak for data. While SpiderOak could hypothetically hand your data to, say, the federal government (which could then crack the encryption by brute force), the company promises to notify users of any data requests from civil subpoenas or state or federal law enforcement agencies unless prohibited by law. Even better, SpiderOak publishes an annual Transparency Report in which the company reveals how many times it has received such requests, as well as how many times SpiderOak complied.