A head gasket is used to seal the cylinder. when you bolt the engine block together, the gasket gets compressed between the top and bototm halves of the engine and provides a near-perfect seal around each cylinder and any coolant / oil channels within the block. If there was no gasket, the rough metal faces of the top and bottom of the engine wouldn't provide a "secure" seal, and the high-pressure gases from combusion, as well as oil and water from the pressurized channels would escape / mix. When a head gasket goes, one of several things can occur. Firstly, the whole engine could go kaput... not the most common outcome, but a serious loss of oil at high revolutions usually means yer pistons won't wanna move anymore However, more commonly you'll find the engine starts to overheat and use a lot more engine coolant than normal. This is caused when the gasket around a coolant channel breaks. Ways to test for this are looking for steam / moisture around the gasket on the outside of the engine block.. Also, check for a "mayonaise" like effect in your engine oil (You'll know it when you see it ) Sometimes neither of these occur and the gasket is broken between a cylinder and the coolent channels. This can again be spotted by the high usage of engine coolant and sometimes by a very "misty" smoke from the exhaust... As well as coolant, the gasket around the oil channels can break. If it breaks to the cylinder, you'll get a bluey colour smoke out of the exhaust. If its quite bad, you'll also be able to smell the burning oil... Again.. it can break between the oil and the external edge of the gasket.. look for oil dripping from the gasket area onto the engine. Simply put.. that bit of paper is really rather important to the life of your engine