... At this point, the microcontroller chip on the Arduino board had been replaced with the 16 KByte ATmega168 and everything but the ICSP port had been disconnected. The Arduino board itself was powered by a 7.5V 500mA power supply and the AVRISP-mkII connected the board with the Mac's USB port.
On the software side, avrdude 5.2 was installed into /usr/local/bin and the ATmega168 boot-loader was made available here /AT168.hex
Burning and Fuses
Burning a new boot loader is a three-step process: unlocking the boot loader segment, uploading the new boot loader, and looking boot loader segment again.
Read the full story here: http://wolfpaulus.com/journal/embedded/arduino2.html