Devoted to understanding the basics and fundamentals of investing

Selling short means selling a security you do not own.  Functionally, your broker borrows the security and sells it for your account.  If the security goes up in price, you lose money.  If it goes down in price you make money.  So selling short is a strategy for securities that you have a bearish view on.

When you are analyzing securities you develop opinions on securities both good and bad.  If you only express your good opinions by going long (buying securities) you leave investment opportunities on the table.  Recent research has shown that you give up 40% of your possible profit by restricting yourself to long only strategies.

When you sell short, you typically have to put up 50% margin.  I would not sell short unless I had capital to cover the entire cost of the security.  You need good controls, entry and stop loss levels before you invest to control your risk. 
Let's use Google Inc as an example.  Google is about to do a stock sale to raise another $2 billion.  If you think the sale might be dilutive to share holders in the short term, you might want to sell Google short.  You would enter an order with your broker to sell 100 shares of GOOG at the market of $388.44.  The following things happen:

1. Your broker borrows 100 shares of GOOG and sells it for $38,844.00.  This money is placed in a restricted account you cannot use until the short is covered.
2. The broker debits your account for $19,422.00 and places it in a margin account.
3. The broker debits your account for any dividends that are paid during the period you have the short on.
4. If GOOG moves above $388.44 you have an unrealized loss.  If it moves below $388.44 you have an unrealized gain.
5. At some point you tell your broker to buy cover for your short.  Your broker buys 100 shares at the market and returns them to the account from which they were borrowed.  You realize your gain or loss.
6. The gain or loss and your margin is returned to your trading account.

This example is given for illustrative purposes only and is not meant to be a recommendation to buy or sell GOOG.  Short selling involves risk of loss of money.  If you do not exercise control, your risk of loss is unlimited.