The Government Department responsible for filtering the internet in Saudi Arabia is the ISU, the Internet Services Unit. They implement the technical controls which are used for the Government censorship. If you want to see their justification for why they do this, you can read it for yourself on this page - ISU Content Filtering. Personally I find it a rather strange page with odd statements like this from the performance section
The difference between filtered and unfiltered web page retrieval reaches on average no more than half a second, which is too miniscule a timeframe for most humans to perceive.
I beg to differ - I can notice an extra half a second delay on every single web page I download! The rest is justifying why they filter - based on the Qur'an and some scientific studies saying that crime will fall if they block porn. What they don't of course mention is the many sites that are also blocked which cover freedom of speech, humanitarian issues and religious freedom. Presumably there aren't enough scientific studies to prove that blocking sites that deal with human rights makes the crime rate fall.
Basically any site that voices a different political, social or religious opinion is going to get blocked by the ISU via their filtering proxy. Although you have to say this censorship is pretty open unlike many countries who are trying to sneak in monitoring via the backdoor.
So how do they do it?
The Saudi government use a system called Smartfilter to filter content, the company who developed this were called Secure Computing but they have been acquired by Mcafee who now develop and support the Smartfilter system. It's nothing very sophisticated, the ISU operate a blacklist of web sites to block - mainly from paid lists which are sold to block categories like pornography. They then supplement this blacklist by adding all the websites that might be critical of the Saudi Government or Royal family.
Here's a little sample of websites that they block - Saudi Human Rights Center, Free Speech Coalition, Voice of Saudi Women - well you get the idea. As journalists have long known in Saudi Arabia - if you want to write something about the Government it better be good !
As the guys as the Opennet project summarised
Generally, Internet filtering in Saudi Arabia mirrors broader attempts by the state to repress opposition and promote a single religious creed.
They are especially paranoid about the internet, recently blogger was blocked as it was being used by activists and journalists in the country to highlight issues within Saudi Arabia. They later changed that and just blocked specific blogs but make no mistake the ISU are actively watching all internet activity from with Saudi Arabia.
In 2009 Internet cafes in Saudi were forced to install hidden cameras to monitor people surfing the internet and the cafes have to supply names and identities of people using their services.
Of course in addition to all the other sites, one category that is blocked is based on anonymizers, web sites that protect your identity using VPN tunnels, proxies and other technologies which bypass the content filters. You can't access the Identity Cloaker main site in Saudi Arabia - unless of course you own the program when you can access anything! Although rather ironically you can currently access the Identity Cloaker subscription page here - Identity Cloaker Trial - this is probably because their blacklist contains the normal web address but they've forgotten to add the HTTPS sites!
The strict censorship of Saudi Arabia though is funnily enough not the main reason that people use Identity cloaker in Saudi - apparently most of them just use it watch BBC Iplayer, Hulu and Pandora. The Saudi government can't be blamed for blocking most of those, that's done by the sites themselves. Sometimes seems like nearly everyone is filtering, monitoring and censoring the internet for their own specific agendas!