In the old days of black-and-white painting programs — most notably MacPaint on the Mac — black pixels were considered foreground elements and white pixels were the background. To select a black element, you had only to vaguely drag around it with the lasso tool and the program would automatically omit the white pixels and "shrink" the selection around the black ones.
The magnetic lasso tool is Adobe's attempt to transfer shrinking into the world of color. Under ideal conditions — very ideal conditions, I might add — a selection drawn with the magnetic lasso automatically shrinks around the foreground element and omits the background. Naturally, it rarely works this miraculously, but it does produce halfway decent selection outlines with very little effort — provided that you know what you're doing.
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