In a nutshell: Frienditto archives Live Journal posts. You point it to a LJ post, and they take a snapshot of the post and store it on their server. The problem lies in the fact that if you give Frienditto your LJ username and password, then they can archive any of the friends only posts you have access to, and make them available in a public archive.
Which, in my mind, completely defeats the purpose of friends only posts.
As a result, if you use Frienditto, please get off my friends list. In the entire time I have used this journal I think I've only Friends Only two posts. One was to a specific person, and the other was some fiction that I wrote that I didn't want generally available, but I disagree with the concept of Frienditto, and don't want to have anything to do with them.
More information about it here which includes a lot of links to other discussions about it.
Edit: Did a bit of following up. Frienditto says it doesn't archive usernames and passwords, and only uses for the URL they are asked to archive. This seems to prove they are lying.
Edit: Further follow up. None of the links on the Frienditto site work now, they all take you to an advertising page for who I assume is their web host. Interesting...