What exactly does password hashing and salting protect against?

[eluser]Rick Jolly[/eluser]
[quote author="wowdezign" date="1263003348"]
...
If I understood him correctly, he's is saying that it would be easy for an attacker to not use a rainbow table, but just test out dictionary + salt and check it against the hash value.

So if I run

Code:

if(md5(stored_salt + dictionary_word) == hashed_password){
    // log dictionary word (the username)
}

That would yield results very quickly. The known element in this scenario is the dictionary word.[/quote]
Actually, I was suggesting creating a rainbow table first.

Code:

for ($i = 0; $i < $dictionary_size; $i++)
{
    $hash = md5(stored_salt + $dictionary_word[$i]);
    $rainbow_table[$hash] = $dictionary_word[$i];
}

if (isset($rainbow_table[$hashed_database_password]))
{
    echo("got ya");
}