HTTP provides a way for clients to authenticate themselves. Here is the rfc for the advanced readers.
Like Basic, Digest access authentication verifies that both parties to a communication know a shared secret (a password); unlike Basic, this verification can be done without sending the password in the clear, which is Basic's biggest weakness.
Basic Authentication Scheme
If the user agent wishes to send the userid "Aladdin" and password "open sesame", it would use the following header field:
Authorization: Basic QWxhZGRpbjpvcGVuIHNlc2FtZQ==
That's base64 encoding so the password is in the clear.
Digest Access Authentication Scheme
Its purpose was to fix the Basic Authentication Scheme way of sending plasswords in the clear.
The first time the client requests the document, a no Authorization header is sent, so the server responds with;
HTTP/1.1 401 Unauthorized WWW-Authenticate: Digest realm="firstname.lastname@example.org", qop="auth,auth-int", nonce="dcd98b7102dd2f0e8b11d0f600bfb0c093", opaque="5ccc069c403ebaf9f0171e9517f40e41"
The client may prompt the user for the username and password, after which it will respond with a new request, including the following Authorization header:
Authorization: Digest username="Mufasa", realm="email@example.com", nonce="dcd98b7102dd2f0e8b11d0f600bfb0c093", uri="/dir/index.html", qop=auth, nc=00000001, cnonce="0a4f113b", response="6629fae49393a05397450978507c4ef1", opaque="5ccc069c403ebaf9f0171e9517f40e41"
There is some checksumming with MD5 happening here. Head over to the wiki page for the details. nonces prevent replay attacks.