It's similar to gambling, most big firms use it as a way of hedging against positions they actually holding. They are linked to the price fluctuations of real stocks and securities and traded through brokers, usually by investment firms or spread betting companies.
For example, now this is just a rough guide, based on my understanding of these through my work previously. Because there's different percentages and margins that can be applied. So, you may only invest £100, but you could lose multiples of that.
Buying long means you think the price will go up, buying short means you think the price will go down.
So let's say you buy a qty of 10,000 & the ask price is £1, but the final price is £1.10. You close at that price, you stand to gain 10,000 x .10p =£1,000.
Works the same way if you say the price will go down. So, it it starts at £1 and drops to .90p, and you close at that price, you'll gain the same 10,000×.10p = £1,000.
Now if you trade wrong, you lose and the multiples can work the other way. You trade 10,000 @ £1 and expect the price to go up, but the price drops by .20p. You may lose 10,000 × .20 = £2,000. It would be like if you bet £100 on a horse to win, but your loss was multiplied by it's actual position in the race, it finishes 10th, you owe the bookie £100x10=£1,000..