"These are files containing groups of often-used computer code which can be shared amongst many programs. This has several advantages: programmers who use library code do not need to keep reinventing the wheel; programs which invoke library code do not each need to include a copy of that code, making their files smaller; updates to library code can be applied in one place, rather than in many programs. In Windows systems, the commonest form of library is the Dynamic Link Library (DLL).
"There are certain disadvantages to DLLs, too. A bug in library code produces a bug in every program which uses that library. A single missing library file might prevent dozens of other programs from executing. A virus which infects a DLL automatically "infects" any program which uses that DLL.
"One virus which does this is W32/Ska-Happy99, which infects the file WSOCK32.DLL, allowing the virus to intercept all future attempts to send email (independently of the email software you are using). The virus then emails a copy of itself along with every email you send."
from Sophos' V-Files