FUD stands for ``Fear, Uncertainty, Doubt''. According to the New Hacker's Dictionary, FUD was defined by Gene Amdahl after he left IBM to found his own company: "FUD is the fear, uncertainty, and doubt that IBM sales people instill in the minds of potential customers who might be considering [Amdahl] products." The idea, basically, was to say that IBM was the safe choice, while buying machines from a competitor could doom your IS department. FUD in that era came to be summarized as ``Nobody ever got fired for buying IBM''.
The power of FUD comes from the nature of the computing environment in corporations. Corporations generally operate upon a three to five year deployment cycle for new technologies. Thus they tend to be very conservative about what technologies they adopt. If, two years into a four-year cycle, a vendor goes out of business or discontinues the product you're basing your business upon, your options are to memorize the mantra ``Will there be fries with that order, sir?'' or to trade in your executive suite for the janitor's closet. Similarly, if you have invested two years into a five-year plan and find out that the technology you chose just won't do the job... again, ``will there be fries with that order, sir?''
The purpose of FUD when preserving a monopoly is to paint the opposing technologies as unreliable, untrustworthy, unsupported, unsupportable, and offered by fly-by-night companies that do not offer the stability of The One Right Choice. The purpose is to scare companies away from using superior technologies in favor of the One Right Choice. The monopoly status of the vendor of the One Right Choice is used to imply all of the opposite attributes: reliability, trustworthiness, supported, supportable, and offered by a company you can depend on.
Some state that FUD is also useful for attacking an industry leader. However, that is a misconception. Trying to use Fear/Uncertainty/Doubt to attack an industry leader does not work because of the very nature of the beast. The One Right Choice has credibility by the very fact that it is the industry leader. Industry leaders do not collapse within the typical five-year business technology cycle. FUD is not going to convince people differently, because experience says otherwise - even IBM's gaffe with the MCA bus and OS/2, for example, did not affect IBM's credibility as an enterprise solution, although it did destroy IBM's status as The One Right Choice.