A 401(k) plan is a defined-contribution plan.  That means that subsequent retirement income depends on the contributions -- how much money do YOU put into the plan.

The money you put into your 401(k) comes from gross income (pre-tax), so the amount of money you pay taxes on is smaller.  

A portion of each paycheck (up to 15%) goes into the 401(k) plan, and into the investments you have chosen.  A 401(k) usually offers employees a variety of investment options: Several stock funds, bond funds, money market funds, and sometimes company stock.  You need to research the funds available to you just as you would any stock or mutual fund.  Just because the fund is contained in your 401(k), doesn't mean it is guaranteed.  These are the same mutual funds that anybody can invest in, and they will go up and down.

The money that is put into a 401(k) reduces your current income tax.  The money in your 401(k) also grows tax free.   That means that if your 401(k) funds do really well one year and you get a 20% return.  You don't have to pay tax on that gain...yet.  If you invested in a mutual fund the normal way, you would have to pay capital gains tax in the year that the fund realized a gain.

Another really cool thing about 401(k) plans is that some companies will add money to your plan.  The company will match 50% for each $1.00 your invest.  This means that even if your 401(k) funds grow at 0%, your retirement fund will grow because your employer is giving you free money.   Some employers will match $1 for $1, so keep this in mind when you're hunting for a job.  You may be better off financially going for a lower paying job at a company that has an excellent 401(k) plan and matching program.

After years and years have gone by, your 401(k) plan should be getting fatter and fatter.  This money is yours, and waiting for your retirement.  Before age 60, you can start taking money out of your 401(k) without penalty.  Since you never paid taxes on the money you contributed or the gain, you'll have to pay taxes as you take it out.  You've got to pay taxes, and it is better to pay them later than sooner.

You can access your 401(k) funds before retirement, but there is a penalty of 10% of the withdraw imposed.  You'll pay more than that though.  Withdrawing money from your 401(k) reduces the account, which reduces your gain.  You'll give up potential growth that can never be gotten back.   You take a loan against your 401(k), but this will only end up hurting you.   Bottom line, forget about your 401(k) as a source of emergency money.  You should have an emergency fund set up to cover emergencies.  The 401(k) is designed to provide retirement funds. Let it do what it does best.