They can be used to redeem games and games addons.
Here's an explanation of what is MSP on Wikipedia.
The MSP have to be purchased with real money.
Though you can purchase it directly using the XBOX360 user interface/dashboard using paypal or credit cards, cheaper options are available as these MSP are also sold in many countries via scratch cards with redeemable codes.
[ February 2012 Edit : You can only buy MSP scratch cards of the same region, ie if your XBOX is in Singapore, you cannot use codes from scratch card for MSP purchased from UK/US/etc ]
You may try hunting Ebay(Singapore) or the usual pre-owned games sites for sellers of such cards.
[ Only local MSP scratch cards are applicable ]
Another good reason to stay original as there are some full game downloads which are not available to buy in a CD/DVD package locally. One example will be Fruit Ninja Kinect which is only available as a digital download which requires a proper XBOX Live account with an unbanned console in order to be purchased with points and downloaded.
Another full download game which is a very popular house party game, Hole In The Wall, is also not available in stores locally and will require an unbanned XBOX360 in order to be purchased with MSP.
Last edited 5th Feb 2012