Interferon is a protein produced by the body to fight viruses. It works by boosting the immune system. Alpha-interferon is a 'recombinant' or artificially produced version of the body's own interferon. The idea is that the drug will help the body rid itself of the virus before it can cause damage to the liver.
The problem with the older products is that they are eliminated by the body too quickly, and must be taken by injection several times a week. Schering-Plough developed PEG-Intron - a 'pegylated' version licenced in the US in early 2001 - which attaches the protein to a large, inert molecule, and Roche developed PEGASYS. This slows its clearance from the body, enabling patients to take it only once a week. Studies are still ongoing.
These drugs are often combined with ribavirin - supposedly to prevent the virus from multiplying.