A timing belt stretches out over time through wear and could break at the worst possible moment, like what happened to Mr_crust. As it stretches, the engine slowly goes out of time resulting in decreased engine performance, lower petrol milage etc.
If the timing belt breaks, the camshaft will stop turning in time with the engine while the crankshaft continues to turn for a short time until the engine dies.
In that short period of time major engine damage could occur such as, broken valve guides, bent valves or a broken camshaft = bad.