> However, it seems like "It's easy to create MD5 collisions," at least as it is true today, actually means something different: That, given a string, it's easy to find a second string that shares the same hash.

Very early MD5 collision attacks were even weaker, actually: given nothing, it was possible to find a pair of arbitrary garbage strings which had the same hash as each other. It wasn't until later that it became possible to pick what the strings would "look like".

> Are these "crafted collisions" generated by modifying string A and string B, until a collision pops out?

Generally speaking, yes.

> If that's the case... what's everyone freaking out about?

The issue with using MD5 as a password hash function actually has nothing to do with collisions. That's a red herring. :) The real problem is that using any fast and/or unsalted hash function for passwords is unsafe!

A fast hash function is unsafe because it makes it easy to generate a bunch of potential passwords, calculate their hashes, and look for a match.

An unsalted hash function is unsafe because it makes it possible to build a "rainbow table" of all possible passwords and their hashes, and look up password hashes in that table.

As used in this situation, MD5 is both fast and unsalted.