What does 'set -e' do, and why might it be considered dangerous?

Source: http://serverfault.com/questions/143445/what-does-set-e-do-and-why-might-it-be-considered-dangerous

set -e causes the shell to exit if any subcommand or pipeline returns a non-zero status.

The answer the interviewer was probably looking for is:

It would be dangerous to use "set -e" when creating init.d scripts:
From http://www.debian.org/doc/debian-policy/ch-opersys.html 9.3.2 --

Be careful of using set -e in init.d scripts. Writing correct init.d scripts requires accepting various error exit statuses when daemons are already running or already stopped without aborting the init.d script, and common init.d function libraries are not safe to call with set -e in effect. For init.d scripts, it's often easier to not use set -e and instead check the result of each command separately.
This is a valid question from an interviewer standpoint because it gauges a candidates working knowledge of server-level scripting and automation