Operating system password encryption -
Unix/Linux Password File
Unix and its various clones have traditionally used the /etc/passwd file to store user account information, including passwords. Because the /etc/password file needs to be world-readable in order for utilities such as `ls` and `finger` to work modern Unix operating systems store the encrypted passwords in 'shadow' file named /etc/shadow.
Username The user's username 
Password	Older Unixes store the password crypt here, more modern ones use an 'x' character to denote that a shadow file is in use.	
UID	The numeric user ID of the user	
GID	The primary numeric group ID of the user	
GECOS Field	This is a text field which may contain information about the user such as name and contact details	
Home directory	The user's home directory	
Shell	The user's Unix shell	
user1:x:600:600:User 1:/home/user1:/bin/bash user2:x:601:601:User 2:/home/user2:/bin/bash admin:x:602:602:Admin Account:/home/admin:/bin/bash apache:x:603:603:Apache HTTP User:/var/www:/bin/bash someguy:x:604:604:Someguy:/home/someguy:/bin/bash 
The password is stored as an encrypted one-way hash of the original password. When a user attempts to authenticate the password supplied is encrypted using the same algorithm and compared to the stored password crypt.
Unix Crypt
The most commonly used password encryption in Unix for many year was crypt(). The Unix crypt command can be used to generate the Unix crypt value for a given string.
jim@localhost ~ $ crypt hello S84xRArsM.gtk 
In modern computing Unix crypt is severly limited. Passwords are restricted to 8 character passwords, and any trailing character as ignored. This puts brute force attacks on Unix crypts well within the realms of possibility.
jim@localhost ~ $ crypt xx hellohel xxiHMKqoMTDuc jim@localhost ~ $ crypt xx hellohello xxiHMKqoMTDuc 
Salts
Unix passwords usually use what is know as a salt to help make pre-computation of password hashes more difficult. A salt is a string which is prepended to the password before it is encrypted and stored along with the password in /etc/passwd. You cannot simply pre-compute crypt() values for a list of dictionary words, you would need to pre-compute the hash for each word along with every possible salt to produce a rainbow table of Unix password hashes. The result is a number of different hashes for any given password.
If we use the Unix crypt command to encrypt a password and do not specify a salt then a random salt value is chosen.
jim@localhost ~ $ crypt hello YnxINyIeMlKCM jim@localhost ~ $ crypt hello v3njh4QHNjoWk 
The first two characters of the resulting hash are the salt and must be used when subsequently comparing a supplied password with the stored crypt.
jim@localhost ~ $ crypt v3 hello v3njh4QHNjoWk 
Salts can be of any length but is typically 2 characters on Unix systems, which helps to ensure compatibility across systems.
MD5/SHA1
More modern Unix systems and just about all Linux systems avoid the limitations of Unix crypt() by using a message digest algorithm such as MD5 or SHA1. Like Unix crypts the stored passwords are usually salted. These message digest algorithms not only allow for longer passwords but are also compuationally more expensive, making brute force attacks harder.
NIS
NIS (Yellow Pages) also uses the Unix password format to store user credentials. `ypcat passwd` will show the password file on a Unix server configured to user NIS.