Why do we need to password protect our system?

They say their is "no such thing as a dumb question" but I know this is one. sigh. I'm curious to the reasons why this is so important.
I understand password protecting prohibits others from piggybacking and using my network. What else does it do?

From Context, I assume you are talking about using a password on your WiFi network.
The answer is "It Depends".
If you live in the middle of no where, then the chances of someone using your network or sniffing your traffic is small.
If you live in an apartment, or your neighbors homes are very close to yours, or there are lots of people driving/walking near your home, then the chances of someone using your WiFi are much higher.
Yes someone may be using your bandwidth. This means your web surfing may be slower as you are fighting with others to download graphics and such.
Chances are your ISP service aggrement says you are not suppose to let others uses your ISP connection.
If someone sniffs your network traffic, then they can see what you are doing on the interenet. The good news is that generally connections to your Bank, or when actually entering payment information while shopping on-line is encrypted between your computer and your bank or on-line store.
Your home router (aka WiFi base station) acts as a firewall from internet attempts to break into your computer, however, if someone can sit in their apartment and use your WiFi, they can also attempt to break into your Mac because they are inside your home network and your router is actually helping them in stead of blocking them. So do you trust your neighbors?

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