ROM stands for Read Only Memory, and basically replaces the operating system of your phone with a custom system. Naturally that requires a lot of risk and trust in the person who wrote it.
It also isn't as easy as downloading an app. You have to root your phone in order to gain the superuser permissions needed to replace the operating system and overwrite stuff.
The benefits are many: custom ROMs often have all the best of 2.1, Milestone, and custom programs built-in... for example, my Bugless Beast 1.1 ROM has live wallpapers and defaults to High Quality when watching YouTube videos. For me, the benefits outweighed the risks.
The risks are doing something wrong while installing it that would turn your phone into a brick. And rooting generally voids the phone's warranty. There ARE programs that you can use to unroot your phone if you need to, and all the information you need to successfully do this are located in the "ALL THINGS ROOT" section.
I hope this helps.