From MozillaZine Knowledge Base
The lock icon in the Status Bar and the Location Bar of your browser indicates that the current web page uses encryption mechanisms for securing the connection in order to prevent malicious Internet users from reading and modifying the exchanged data between your web browser and the web server. Next to the lock icon is also displayed the actual domain name to which the encrypted connection is being transmitted.
You should be aware that the lock icon simply indicates that the connection between the web browser and the web server is secured. It does not guarantee that the information will be securely handled after it arrives at the web server. Therefore you should ensure that you completely trust a web server whose web page shows the lock icon, before typing in private or personal information such as usernames, passwords and credit card details.
If the web page mixes both secure and insecure data, then a lock icon with a red slash over it is shown instead. This means that the current web page contains items (such as images or iframes) that were not obtained through the encrypted connection.
In Firefox 3 this feature is replaced with the favicon to the left of the location bar becoming the Site Identification button replacing the yellow background and “padlock” icon that has been the primary security indicator used in browsers