If you listen then they will go on to tell you how they know and they will guide you to the event log where they can "prove" that your computer is infected. Should you choose to argue with them they will probably threaten to disable your windows so it can do no more damage (this is a lie, they can NOT do this, it's impossible), they may even get quite nasty or rude.
And don't be surprised if they ring back! (one bloke rang me back 3 days running!)
This is a scam - these people want access to your money!!!!!
If you let them they will take remote control of your computer, once on they could leave software that will glean your login and passwords, they could modify your computer so that it is vulnerable to further attacks or could be used in conjunction with other computers beyond your control, but most likely they will install software that you don't need, probably won't do as is claimed and requires you to pay an excessive amount of money.
And if you pay that money, you can't get it back! Worse still, the transaction normally takes place on the web where you have no idea whether your username and password has been compromised. They may well have access to your bank account.
If you get a call and you're not sure, ring me and at no charge I'd be happy to advise you.
If you have any doubts, then please check out these links. Many thousands of people have been targetted and far too many have paid good money for a "service" that effectively crippled their computer (and their wallet).
Scamwatch email alert
Australian Government, ACCC official warning
This site has great examples of what happens - if you've had a call these will be very familiar.