If a user connects to a VAC-Secured server from a computer with identifiable cheats installed, the VAC system will ban the user from playing on VAC-Secured servers in the future.
While server admins may choose to ban specific players, server admins cannot VAC ban players. The VAC system is automated - contacting Steam Support to report cheaters is not necessary, nor will Steam Support act on any information provided.
The VAC system reliably detects cheats using their cheat signatures. Any third-party modification to a game designed to give one player an advantage over another is classified as a cheat or hack and will trigger a VAC ban. This includes modifications to a game's core executable files and dynamic link libraries.
The following will not trigger a VAC ban:
Using chat programs like X-Fire
System hardware configurations
Updated system drivers, such as video card drivers
Use only trusted machines to play on VAC-Secured servers - if you are not sure whether or not the machine you are using to connect to Steam may have cheats installed, do not play on VAC-Secured servers.
Use caution when installing any game modifications, such as scripts or custom skins. Only download custom content from trusted sources. Hackers sometimes maliciously disguise their cheats to cause others to get banned.

For more information on Valve's policies, please see the Steam Subscriber Agreement and the Rules of Steam Online Conduct.
Steam Subscriber Agreement
Steam Subscriber Agreement
Rules of Steam Online Conduct
Rules of Steam Online Conduct

What is VAC?