Why does your site get messed up when you turn on SEF (Search Engine Friendly URLs)?

From Joomla! Documentation

Usually this has something to do with your host's settings. One solution that commonly works is to enter a value for the livesite variable in configuration.php. This must be manually entered.

Typically, it would look like this:

var $live_site = 'http://example.com';

But, if you access your Web site in a folder, it would be like this:

var $live_site = 'http://example.com/joomla';

• See Joomla! v 1.5 SEF URLs Scribd by Benjamin Hättasch which contains step-by-step instructions for installing and trouble-shooting your SEF URLs.