You create a starter with a small amount of water and dried malt extract (exact amount determined by how "big" your starter needs to be).
What happens is the yeast start to eat the sugars in the starter and multiply. The more yeast that you start out with, the better your fermentation will be.
I agree with Hammy71. Check out the Mr. Malty site to get some more detailed information.
Fermenting: Pale Ale, Pilsner, White IPA
Drinking: American Brown Ale, Marzen
On Deck: Oatmeal Raisin Brown Ale