Cross-site scripting (XSS) is a type of computer security vulnerability typically found in web applications which enable malicious attackers to inject
The XSS attacks' issues are more fishing related. The problem is that a site that a customer trusts might be injected with code that leads to site made by the attacker for certain purpose. Stealing sensitive information, for example.
So, in XSS attacks the intruded do not get into your database and don't mess with it. He is playing with the sense in the customer that this site is safe and every link on it is pointing to a safe location.
This is just the first step of the real attack - to bring the customer in the hostile environment.
I can give you a brief example. If a bank institution puts a shoutbox on their page, for example and they do not prevent me from XSS attack, I can shout "Hey come on this link and enter you passwords and credit card No for a security check!" ... And you know where this link will lead to, right ?
You can prevent the XSS attacks by make sure you don't display anything on your page, that is coming from users' input without escaping html tags. The special characters should be escaped, so that they don't interfere with the markup of your html pages (or whatever technology you use). There are lot of libraries that provide this, including Microsoft AntiXSS library.