[efreak]

My understanding is that hosting companies use hashes of known material in combination with automated scanning. Also, that some companies may not want to tell you much about how they do it, because the act of identifying it means looking at it, which is illegal (I have not researched this, I might well be wrong/inaccurate)

[joemi]

I'm pretty sure looking at it isn't the illegal part. Making, possessing, and distributing are the illegal bits. Maybe some other aspects too, like transporting or buying or some form of conspiring? I don't think the government (at least the US gov't) can actually make looking at anything illegal. But it's hard to look at something that's restricted in that way without doing at least one of the illegal things.

If just looking were illegal, you could shove it in someone's face on the sidewalk and they'd instantly be guilty of a serious crime.