In order for the starches in your malt to convert to sugar, they need to be exposed to water, and in order for that to happen, the grains need to be crushed. The ideal crush will be enough to crush the grain kernel without creating too much flour and without shredding the grain's husk. Too much flour can create difficulties in lautering (clarifying) the wort and in sparging the sugars because it creates a sticky paste in the mash. Keeping the husks intact is important because the husks help to filter out solids and keep them from traveling from the mash tun into the grain bed.
When I first switched to all-grain brewing I decided to try to do things cheaply. I thought that I could just crush the grains with a rolling pin on my kitchen counter. That obviously failed, as the grains were too hard. Then I tried putting the grains in plastic bag and pounding them with a hammer. The bags tore before the grains were crushed. So, I ended up just dumping everything into the mash tun uncrushed. The end result was that I ended up with half the sugar I had hoped for, and a 2.8% ABV beer rather than a 7.9% ABV beer. It was still tasty, but not at all what I had intended.
Lesson learned, I decided to purchase a malt mill. I chose the Barley Crusher malt mill. Aside from occasionally having to clean it due to flour buildup between the rollers and the aluminum frame, it's been a pretty hassle-free mill. One cheap upgrade I performed was to replace the Phillips-head screws with flathead screws. Costs all of about 56 cents at your local hardware store, but it's much easier to make adjustments to the crushing rollers and more difficult to strip the heads.
For a while I've been crushing the grain twice, once with the roller markings in the 12 o'clock position (indicating a gap diameter of .039", and the second time with the rollers in the 2 or 3 o'clock position, indicating a tighter crush. I never had sparge problems, but my last brew I decided to skip the second step and just do the first crush. There was much less flour produced, and my calculated efficiency was 83.6% versus 84.6% for my last double-crushed brew. In my opinion that decrease is insignificant, so I think I'll keep crushing only once.
Crushing malt is not the most exciting thing in the world, and probably one of the more tedious tasks in brewing, but you can't make beer without crushing your grains.