It's quite simple, actually. There are programs called "desniffers" that know the format that the different IM clients use. They then look at every packet on the network, and whichever packets match the "IM" profile are decoded and displayed to the user. BTW - most IM clients use "clear text" to send their message - that is, any fool with a sniffer can see the contents of the message.
BTW - these same programs can be used to get passwords from POP-3, Web passwords, and a number of other softwares.
In other words, if you're doing ANYTHING at work - including using yahoo mail, or something else, it's very likely that it can be viewed by your employer. I'd look into using something like anonymizer (www.anonymizer.com) if you're that worried, or look into any of the "secure IM" features of Trillian.
Also remember that your employer also had the right to, and likely has, read any and all of your work e-mails.
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