What does apply_filters(...) actually do in WordPress?

I'm trying to understand some of the functions in WordPress, but I can't get my head around what apply_filters(...) actually does.

Is someone able to clear this up for me with a few examples?

apply_filters($tag, $value) passes the 'value' argument to each of the functions 'hooked' (using add_filter) into the specified filter 'tag'. Each function performs some processing on the value and returns a modified value to be passed to the next function in the sequence.

For example, by default (in WordPress 2.9) the the_content filter passes the value through the following sequence of functions:

• wptexturize
• convert_smilies
• convert_chars
• wpautop
• shortcode_unautop
• prepend_attachment
• do_shortcode