There have been a number of stories in press lately about a system called Carnivore (what a great name). This is a hardware/software system designed by FBI to intercept emails at an ISP so they can be used in a criminal investigation.
Before going any further, it may be useful to explain how email works. By it's very nature, email is completely insecure. Any number of people can read that personal note you have written, and it's very possible that your private messages to that other woman could wind up in newspaper.
Perhaps best analogy is to compare email to postcards. When you send a postcard, you write your message on one side and put address on other. The message can be read by anyone who cares to pick up postcard.
The path an email takes to get to it's destination is very interesting. First, of course, you compose a message in your email program. Regardless of whether it is Eudora, Outlook, Outlook Express or any number of other packages, email will almost certainly be saved in a temporary folder. Some mail programs delete temporary copy of message after it is sent and some do not. In any event, it is entirely possible that a copy of email is sitting on your hard drive for anyone to look at.
Of course a copy is kept in your sent items folder, unless you've deleted it. And even then, a copy might be kept in your deleted items folder. If you are using Microsoft Exchange as your email engine, then it might even save a copy even if you delete message permanently, just in case.
Okay, once you send email it goes out to internet. It's possible for a very good hacker to grab it directly off wire (although highly unlikely as this is not easy). The message will get routed to your ISP's email server, which means it will reside on one or more computer systems for a brief time. Of course it could be intercepted at any of these.
Once message reaches your ISP's SMTP (email) server, it will get stored there for a time, until SMTP server can figure out how to send it onward to it's destination. The message will get sent here and there, as indicated by various systems, until it reaches destination POP (post office) server, where it will wait to be read. Of course, once it is read by someone on other end, they could store it, delete it, forward it and reply to it, further increasing chances that someone else will see what you've written.