Actually, the toothpaste thing works, but there's more to it than just putting it on and washing it off.
First, you have to find a gritty toothpaste. put some on a deep scratch on the disk. With your finger or a cloth, rub the paste hard onto the disk. What you're trying to do is to take the edge of the scratch. If you imagine the scratch as a "V" shaped groove on the disc's surface. The "V" works like a prism to the CD/DVD laser and refracts the light trying to get to the data. By rubbing the toothpaste into the groove, you lessen the prism effect.
Ideally, you'll want to feather the rubbed portion of the CD and try to leave the disc as translucent/transparent as possible.
Mind you, there are better and easier methods of fixing scratches, but the toothpaste deal is more like an emergency fix, if anything.