"By destiny compell'd, and in despair,
The Greeks grew weary of the tedious war,
And by Minerva's aid a fabric rear'd,
Which like a steed of monstrous height appear'd:
The sides were plank'd with pine; they feign'd it made
For their return, and this the vow they paid.
Thus they pretend, but in the hollow side
Selected numbers of their soldiers hide:
With inward arms the dire machine they load,
And iron bowels stuff the dark abode."
The Aeneid - Book Two
The Trojan Horse was a really big horse that the Greeks used to sneak into the walls of Troy during the Trojan War. It doesn't appear in the Iliad or the Odyssey, as the Iliad ends with Hector's funeral and the Odyssey begins with Ulysses wandering about getting laid by the half-goddess of reggae music. Or so I'm told.
So here's the thing: laying siege to a city is boring. The greeks didn't have cannons, or ICBMs, or any of the modern weapondry that makes huge walls pointless. So essentially they had to out-starve the Trojans. In other words — not gonna happen. Even the most lust-driven soldier has trouble justifying a ten year siege.
Thankfully, Athena stepped in and gave Ulysses the blueprints to a gigantic, wooden horse. At the time, the horse was the device of Poseidon, so such an offering would be perceived by the Trojans as an offering to Poseidon, so that the Greeks could return home safely.
Don't worry. Poseidon gets pissed about them using his horse for war games later.
So the Greek army made a tactical retreat, leaving behind a elite unit inside the horse. The Trojans took the horse into the city, had a party, got drunk, and fell asleep. At midnight, the Greeks exited and proceeded to kick some Trojan ass.
The imagery has since passed down through the ages to mean something malicious that masquerades as something benign, especially to gain entry to a place it normally shouldn't be. For instance, a program that looks like a "download accelerator" or some other harmless program, but instead gives a cracker access to one's files would be called a Trojan horse, or simply a Trojan.
This is also the source for the well-known aphorism: "Beware Greeks bearing gifts." How this became the name of a popular brand of condoms (or so I'm told), I'm not sure. | 
