This post is aimed at the personal user more than the commercial user, as the commercial user probably already takes these precautions. For individuals, before selling, recycling, or otherwise disposing of your computer hardware, you need to be sure to thoroughly erase your hard drives if you have any personal information on them.
Simply deleting the information isn't sufficient, as it doesn't actually remove the data itself, only pointers to it. Reformatting is better, but only by a tiny amount. It's still possible to go in and find traces of the old data, much like tearing the top sheet off of a notepad and still seeing the impressions of the pen on the sheets below. Think about it. You're selling your computer at a yard sale, and a kid gets it and he's able to use readily available data recovery programs to find your old tax returns, pictures, videos, financial statements, work documents and so on.
The best way to be sure that your data has been thoroughly erased is to use a program that will repeatedly write and erase more or less random data all over the hard drive. That way anything that can be recovered will be meaningless jibber-jabber. There are several programs out there that do this, but here we like to use Darik's Boot and Nuke, also known as DBAN. What's nice about it is that it has several different levels of data scrubbing available, and it's also free. You just download the image, burn to a CD, boot to the CD and off you go to the erasure races.