Difference between exclude and include traffic?

From Google Analytic's help, I get information about Predefined Filters:

Exclude traffic from the domains: use this filter to exclude traffic from a specific domain, such as an ISP or company network.

Please help me to understand the difference between exclude and include traffic with a website? and what does the filter actually do?

Say you wanted to see all the traffic coming from just the major search engines (Google, Yahoo, Bing) you could create a filter that exclude every other site but those.

Included are sites and IP's you feel are sending legitimate traffic.
Excluded traffic is when you have found out that a particular IP or website is sending you bad traffic such as traffic generators, paid to read, etc. Then you can list the domain or ip to be excluded from the official counts to protect your account from getting a fraud.