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This is known as Captcha or the newer version is Captcha2. It is a method to insure that the person entering data on a form (such as an account creation form) is really a person rather than an automated data entry program. The theory is that with the distortion and the fact that the picture is actually a picture rather than identifiable text, it would require a human to interpret what letters are on the screen and it seems to be pretty effective too.

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