If you want to understand short selling, read The Basics of Shorting Stock for a full explanation.
Example: You decide to short 10 shares of a stock that cost $50. You enter a short order with your broker, who borrows the stock from another one of his or her clients. Once you have the borrowed shares, you sell them. Since you didn't own those shares, you are going to have to pay the owner back in a short amount of time. The stock price falls to $40, so you purchase the shares. This costs you $400 (10 shares x $40 per share) and give them back to the original owner. Since you sold their shares for $50 earlier, you made $500 (10 shares you borrowed x $50 per share). Your profit is the difference between the two, in this case, $100 (because $500 - $400 = $100).