MAC address filtering is a means of only allowing specific permitted devices (filtered by their MAC addresses) unto the WLAN. An access control list based on MAC addresses is built up in the wireless device (router or WAP).
MAC address filtering and WEP are not the same thing. You can have MAC filtering on, and without WEP the info on your network is broadcast in open. Anyone with sniffer software can read you open traffic; they cannot get onto your network (but soon could after reading your MAC addresses in the open traffic and then spoofing a MAC address to get network access). So adding WEP to encrypt the traffic just adds another layer to try to keep snoopers out.
Have a look at: Confused about wireless technologies?. There are a number of documents that might help clarify things.