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In the old days of black-and-white painting programs, black pixels were considered foreground elements (the strokes you painted) and white pixels were the background (the electronic paper or canvas). To select a black element, you had only to vaguely drag around it with the lasso tool and the program would automatically omit the white pixels and "shrink" the selection around the black ones.
The Magnetic Lasso tool is Adobe's attempt to transfer shrinking into the world of color. Under ideal conditions a selection drawn with the Magnetic Lasso automatically shrinks around the foreground element and omits the background. Of course, it rarely works this well, but it does produce halfway decent selection outlines with very little effort — provided that you know how to tweak the tool's options in your favor.