At layer 3, Multicasting is kind of like a conference call where one source host sends IP packets to multiple destination hosts. This is accomplished by sending packets to a class D IP address. Workstations that are members of the multicast session listen to this class D address; non-members pay no attention. In a traditional shared Ethernet environment (hubs) or switched environment (switches), a multicast session at layer 3 simply becomes a broadcast session at layer 2. So even though all hosts receive multicast packets, only interested hosts process them. And as you mentioned, the broadcast traffic can adversely affect your network.
Newer switches prevent multicast IP traffic from becoming a broadcast at layer two by participating in the multicast session. If you are using Cisco routers and switches, you can enable Internet Group Management Protocol (IGMP) on your router and Cisco Group Management Protocol (CGMP) both on the router and on your switches. With this configuration, the router will announce new multicast sessions to your switches, and the switches will in-turn, add and remove switch ports to/from layer-two multicast sessions.
Another method that does not require a layer three device is IGMP snooping. IGMP snooping is a special capability that allows some newer switches to peek inside the layer-three encapsulation to learn who is and who is not participating in a given multicast session.
