Again, this one's for the newbies, so we'll start with the basics. ROM actually stands for Read Only Memory, but over time, it has developed a new meaning in the custom ROM community. The ROM we're referring to means the actual custom OS image that you install to the ROM area of your Android phone.

When you see the term, 'stock ROM', it's referring to the operating system that came with your phone when you bought it. These 'stock' ROMs are typically available from manufacturer's websites. A 'custom ROM', however, is a customised version, or an new, compiled version of the phone's OS.

So... why install a custom ROM? What are the benefits?

Frequency of Updates

I'll give you a working example. GingerVillain for the HTC Desire Z/Vision was release on the 29th December, as version 1.0. Now, on the 10th January, we're at version 1.4. That's Gingerbread, on your phone, WAY before T-Mobile/HTC have even conceived offering this as an update.

Quality& Performance

As has been proven time and time again, the best developers and Android gurus are rarely the guys working for the manufacturers/carriers. Also, they're not forced to push out crappy bloatware. Custom ROMs are generally more efficient and perform better, due to a lack of carrier-branded garbage. Orange and T-Mobile in the UK are prime culprits of filling your phone with rubbish, but they all do it to some extent. 

Optimised kernels go a long way to increasing the performance of a ROM. A good example is the HTC Desire Z/G2/Vision. Its STOCK clockspeed is 800Mhz, however, the phone can run with just as much stability at 1.5Ghz, making it the fastest smartphone available, hands down.

In addition to overclocking, undervolting can provide a huge improvement in battery life.

Community

Custom ROM developers attract a great community following. I met almost every member of the VillainROM team by releasing custom ROMs for the HTC Hero. The guys helped me fix bugs, helped me with themes, and even set up a (now popular) website with integrated kitchen.

Money money money

All the major ROM developers offer their custom ROMs entirely for free. Optional donations can be made, of course, but the beautiful world of open source means they're entirely free. DO NOT PAY for a custom ROM - believe me, you'll find (often better) alternatives for free.

Freedom of choice

Custom ROMs give you options. Do you want the latest and greatest version of Android, before the manufacturer/carrier gets around to releasing it? Or.. do you want a ROM that's been ported over from another device? Well, porting is all part of custom ROMs.

Apps2SD

If you're unlucky enough to own a device with a tiny internal storage, you're probably going to need Apps2SD if you plan on having more apps than there are words in this guide.

And what are the negatives?

I'm not going to lie to you... there are risks. Mostly minor, but risks nonetheless. Something COULD go wrong with the flashing process, but in the most part, you can restore it back to its original state. Try to go for a ROM with good feedback, and you'll generally be okay.

Wiping

This is a negative to most. Jumping between different OS versions (2.2 -> 2.3) means that you'll typically need to perform a full wipe of all your data, forcing to you setup your phone from scratch as if it were a new phone. It can be a pain in the arse, but applications like Titanium Backup go a long way to helping with this process, with its 'batch restore' feature.

Warranty = Void

Yes, that's right. Those carriers and manufacturers aren't going to be too happy if you return a phone running VillainROM or CyanogenMod. Nine times out of ten though, you can easily revert back to the 'stock' state – that's stock ROM, un-rooted, etc. Nobody will be any the wiser.

Flashing addiction

Yes, this is a genuine and recognised condition. Once you've flashed a custom ROM, you'll flash more. You'll jump between them like a fat kid jumps between meals at an all-you-can-eat desert buffet. Be careful.

I hope that gives you a good insight into custom ROMs, and the benefits (and comparatively minor negatives) of using them over stock.