Java is an application (technically a Virtual Machine) that runs on your computer to enable other little applications to run in your web browser. It needs to be updated regularly to fix significant security vulnerabilities that can leave you open to attack.
Problem is, it's always been very difficult to find out if you need an update (it's a SUN product, so Microsoft Updates won't alert you) and even worse, if you do update, it leaves the old insecure version behind!
The good news is, Sun has finally released an update mechanism that solves both of these problems. Thanks to a Solo Technology post, I can point you to a link which will allow you to automatically check whether your Java is up to date. If it's not, the page will offer you the appropriate download, which will also remove the old version in the process.
Watch out in the installation steps - you'll be offered the Yahoo Toolbar which you'll almost certainly want to decline. It's offered purely as a money-making option for Sun. After completing installation, you'll need to restart your browser to complete the install.
It's now easy to do and well worth the small effort as a way to plug yet another potential hole in many users' security. Go take the test!