This is actually a fairly interesting branch from the English language, from a perspective of someone who is continually fascinated by the various intricacies of linguistics. Having dabbled in the "underground" computer scene in the early 90's, I ran into this phenomenon and was, for a short period of time, intrigued by it.

It is, at its face, a simple system of transliteration, with some basic rules, and certain other minor variances, which, like individual dialects of a language, seem to differ by geography. This was, at least, the case during my days of BBSing. For the most part, things are as follows:

E = 3

L = 1

O = 0

T = 7 or T = +

This is just the basic list. The letter "A" is often expressed as "4" or "@", while G is sometimes, though very rarely, substituted as a "6". The thing that really makes things confusing is the fact that words are frequently spelled phonetically, such as typing "3y3" instead of simply "I", the personal pronoun. This is done so that more symbols can be fit into a sentence or expression, for the most part. The more complicated and obfuscated the expression, the more "1337" you are.

More recently, there has been a further complication introduced. Instead of being happy with ending certain words with "3r" or "3d", the tradition of adding "x0r" has become quite popular. Instead of someone saying they are a "hacker", they say "hax0r". Past tense verbs are similarly changed, so now you have not been "hacked", you have been "hax0red". The letter "Y" has been replaced with a lower case "j". "You" is now expressed as "j00", and the rather popular greeting of "Yo" is now "j0". 1337 is a difficult language to keep track of, as it seems to go through modifications like this on a pretty regular basis.

It should also be noted that, as someone has already said, real "hackers" don't use this. This is a phenomenon that seems to be strictly reserved for script kiddies, web page defacers, and other lower forms of life in the computer underground.