a keylogger is a program or piece of hardware that records keystrokes, often so that they can be sent out to or collected by a 3rd party but sometimes for use by the computer's owner for system monitoring... the fundamental functionality of keylogging is also present in keyboard/mouse playback utilities...
in the malware domain keyloggers are generally installed by the user without the user knowing what it will do (therefore qualifying it as a trojan horse program)... this can occur by the user running the keylogger directly, or by running a dropper or downloader trojan that installs the keylogger...
keylogger trojans are often used to steal sensitive information like credit card numbers, banking information, even passwords (those designed specifically for passwords are password stealers)... they can also be used for more general electronic surveillance, monitoring email and/or instant message composition, monitoring search terms typed into a search engine (potentially useful for adware), or even monitoring ordinary web-form input for the purpose of identity theft...
hardware keyloggers require the attacker to have physical access to your computer or at least some part of your computer involved in keyboard input (like the keboard itself)... hardware keyloggers obviously don't qualify as trojan horse programs (since they aren't programs) but they are often disguised or otherwise obscured to prevent the victim from becoming aware of their presence...
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