Are poker sites able to see what is on my computer?

In short: sort of.

Part of the user agreement with basically every poker site (including Party Poker) includes a bit about how they are allowed to monitor what is going on your computer while you are playing on their site.

They are looking for applications that are running that may be allowing you to cheat the game. If you are not doing anything wrong, you have nothing to worry about, and their scans are meaningless.

But if you have AOL Instant Messenger open and you're talking to your friend who has AOL IM and is at the same table - you will get your account flagged and an investigation may occur.

To summarize: play fair and you don't need to worry about their security precautions, as they are there to protect you. They aren't looking to see what you're writing on your English paper or who you're emailing. They just want to make sure we can all play on a level playing field.