TOR Online Anonymity Project Discussion

TOR is a system intended to enable online anonymity.
Here's what wikipedia has to say about TOR:

Tor client software routes Internet traffic through a worldwide volunteer network of servers in order to conceal a user's location or usage from someone conducting network surveillance or traffic analysis. Using Tor makes it more difficult to trace Internet activity, including "visits to Web sites, online posts, instant messages and other communication forms", to the user.

Could someone discuss about how it operates?