The transmitter has an IR LED in it and the receiver has an IR detector in it. When you hit a button on the transmitter it flashes a code with the IR LED. The receiver reads those flashes and then performs the action associated with that code.
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+1To make the system more robust, while sending data at a few thousand kbps, the led actually flashes at 40khz, such that '40khz flashing' is counted as 1, and 'nothing' is counted as zero. That way, you can subtract any background light/noise from the equation so long as it isnt flashing. The faster flashing also acts as a clock signal.
@Frollard.Ermm. No, the signal is Manchester encoded.
Homework? Did you try searching online first?
Infrared light. flashing on and off very quickly.