Also refered to as 'Directory Traversal' this type of attack enables an attacker to move through the server directories, outside of the normal webroot. From there he is able to view critical system files, source codes and many other things. He could even carry out Cross Server attacks if he wishes.
An attacker approaches our hypothetical website 'bank.com'. He browses the site. He soon notices that the website uses GET requests in order to view pages.
When viewing this link the page 'transaction.php' is called. The attacker tries a Path Traversal attack:
He now has access to the passwords.