/etc is one of UNIX systems' most essential directories because it holds all the basic system configuration files. Never delete it to save space! Likewise, if you want to extend your tree structure over several partitions, remember that /etc must not be put on a separate partition: it is needed for system initialization and must be on the root partition at boot time.
Here are some important files:
passwd and shadow: these are text files which contain all system users and their encrypted passwords. You will only see shadow if shadow passwords are used, which happens to be the default installation option for security reasons.
inittab: this is the configuration file for init which plays a fundamental role in starting up the system.
services: this file contains a list of existing network services.
profile: this is the shell configuration file, although certain shells use other files. For example, bash uses bashrc.
crontab: the configuration file for cron, the program responsible for periodic execution of commands.
Certain subdirectories exist for programs which require a large number of configuration files. This applies to the X Window System, for example, which stores all its files in the /etc/X11 directory.