MD5 is known as a one way hashing algorithm. This means for all intents and purposes, you cannot reverse it. Similar algorithms include SHA1 and yes, unix crypt. There is an interesting metaphore of a one way function here.

Web programmers use MD5 (or other one way functions) to create a unique string to use as a session id for that particular user. The session id is stored server side along with the user (name|id) and client side as the cookie value. Identification of the incoming user is done by retireving the cookie, looking it up in the "session table" then mapping it to the user.

Have a look here, here, here and here for more information. There is also a node somewhere about storing information other than sess_id's in cookies, but i cant seem to find it anywhere...

Update: I the node on storing data client side is here. Thx to wmono for a slight correction in my grammer.