Creditslips blog has the article The Behavioral Economics of Bitcoin by Adam Levitin.
Bitcoin is a completely decentralized peer-to-peer currency and payments network. There is no central Bitcoin authority that verifies transactions, etc. This also means that there is no central for-profit manager that has to be paid to operate the system. Instead, every Bitcoin user has a Bitcoin wallet on a personal electronic device (or webhosted). This wallet consists of open-source software that interfaces with other Bitcoin users’ software.
The above excerpt is only the beginning of the explanation. There is something called bitcoin mining that is the mechanism for creating bitcoins. I had heard about this, but hadn’t found an explanation until reading this article. I won’t steal Adam Levitin’s thunder by quoting it here. You’ll have to read the article yourself. The explanation is pretty brief, but it is enough to satisfy me for the moment.