127.0.0.1 = the machine you type this number on (localhost).
to find out the IP of a windows machine (the old fasioned way) open a DOS window (thats start > run > command for 98, start > run > cmd for xp) and type in ipconfig
your friends then need to connect to the ip in ipconfig (on the server) if you are on a local area network.
If you are connecting over the internet, use http://www.whatismyip.com/
to find out your ip and make sure that your firewall (if you have one) allows people to connect to the toribash server. Also, if you are using a router, you will have to set up port forwarding. That is complicated so check the manual for your router (there is no set way to do this).