Tis indeed a scam,
Usualy involves gaining remote access to your PC and "examining your system" to find the cause (read insert nasty to said system). Then you are required to purchase software to fix the problem.
The caller purports to be from ISP /MS/AV company, and that your system has reported to them of the problem.
Apart from selling bogus software, they can harvest credit card numbers as well.
I have heard of people following their prompts and reporting no response, turns out that a) the computer wasnt on {after all they didnt tell you to turn it on} b) they were using an Apple of some sort, c) they were on a *nix system. A good way to lead them on for some time...