An urban legend is a type of modern folklore story, endlessly circulated by word of mouth, repeated in news stories and distributed by email. They are frequently recounted as having happened to a "friend of a friend". Some of the stories are very old, having been only slightly modified over the years, as in the story of a woman killed by spiders nesting in her elaborate hairdo. Others are new, as in the story of the man on a business trip being seduced by a woman and waking up the next morning with a kidney surgically removed for transplant.
Some urban legends are actually based on true events, such as the case of the young man doing target practice on a large saguaro cactus. He was killed when his gunfire severed the trunk, resulting in his being crushed by the falling plant. Even when essentially true, however, the stories are often distorted by the many retellings from the original event.
There is a thriving newsgroup, news:alt.folklore.urban that discusses these stories. The newsgroup's Frequently Asked Questions page summarises the truth or otherwise of these stories, so far as this can be determined. A similar list may be found with The Urban Legends Reference Page at snopes.com. For online urban legends, a good source is Virus Myths; another is the Darwin Awards site, which also showcases a few stories each year of dubious veracity (they've promulgated Urban Legends as facts in the past).
Certain early historians such as, for example, Tacitus, Geoffrey of Monmouth and Herodotus were the progenitors of urban myth, recycling hearsay and anecdotal accounts as historical facts; these writings, in turn were used as the basis for other accounts, and thus many cycles of inaccurate historical narrative became self-perpetuating vicious circles. Contemporary historians tend to cast a very cold and careful eye over historical evidence emanating from writers such as these. A list of these and other works considered to be suspect is to be found at Dubious historical resources.