How viruses spoof the from-address in emails

You have effective anti-virus software, so your computer is clean,
You send an email to Fred,
Now your email address is in Fred's address book in his email software,
Fred does not have effective anti-virus software, and his computer has a virus,
The virus on Fred's computer scans his address book for all of the email addresses on it,
The virus sends email to every address on Fred's address book,
The virus emails do not say they are from Fred!, The virus pics another addresses from Fred's address book and puts it in the 'From field' in the outgoing email. The virus may combine the name from one address and the domain from another, creating a 'from address' that does not exist.
These emails are received by other computers, which detect the virus (because they have good anti virus software) and reject the email,
When the receiving computer rejects the viruses email it sends an 'Undeliverable' to the sender e.g. something like 'Subject: /Delivery Notification: Delivery has failed'.
But! the 'Undeliverable' note goes to the spoofed from address (not to Fred) e.g. the 'Undeliverable' note could be sent to you.
Often there is no trace of Fred's real address in the virus email or the 'Undeliverable' note, so you can not tell who's infected computer is sending these emails.
The solution: Make sure you have good anti-virus software and tell everyone you know to do the same.