Caller identity changing allows a caller to input or choose the number that they wish to appear to be calling from. So for example, if someone were doing a good impersonation of the U.S. President and had the phone number for the White House, one could input that phone number into their caller ID spoofing product and appear to be calling from the White House. That is, the prankster's unsuspecting victim will see the identifying number on her telephone caller ID, and it will be the U.S. White House identifier.
Caller ID spoofing originally developed for businesses wishing to appear to be local when in fact they were not. This is because customers tend to be more comfortable with local or regional folks than customer courtesy calls from, for example, Malaysia or India.
What has happened unfortunately is that harassers, stalkers, scammers, and fraudsters use it for their bidding as well. This might be as simple as putting in a fake number to annoy someone without being found out, all the way to being something to aid in illegal activity like identity fraud and theft. For example, a fraudster get their hands on a customer list from a-- say Charles Schwab representative, they can call with mock Schwab identifier, assume the identity of the Schwab representative, and scam even more information out of customers.
The good news is that Congress is currently working on a law that would make it illegal to modify caller ID information with the intent to "defraud or harass another person, or to use another person's caller ID information without consent."
So basically, this law will not take caller ID changing technology off the market, but it will create criminal consequences for people who misuse the technology. The law would not make all "joke" or "prank" calls illegal, only those that include the caller assuming someone else's phone number.
To learn more about the Act that makes masking your caller ID illegal, check out the Preventing Harassment Through Outbound Number Enforcement Act (H.R. 740). Also, there is another bill that is very similar to H.R. 740 called the Truth in Caller ID Act (H.R. 251). Remember these aren't laws yet, they're just bills.
