The most basic type of camera obscura is simply a darkened room with a small hole in one wall, through which light enters and projects an image of whatever's ouside the room onto the wall opposite the hole.
The hole (aperture) works like a very simple lens, focusing light from the surrounding area and concentrating it into a smaller area, where all other ambient light has been eliminated. This creates a projection of the outside world inside the box.
The image projection will appear upside-down and back to front. This is because light travels in straight lines, so the light coming from the top of the tree in front of the box, for example, will travel in a straight line down through the aperture and end up at the bottom of the picture inside, as demonstrated in Fig.1:
Fig.1. Rectilinear Light Propogation
The brightness of the image will depend on the size of the aperture and distance of the subject. Brightness and focus can be controlled to some extent by adjusting the size of the aperture: The bigger the aperture, the brighter the image will be. However, as the size of the aperture is increased, the image will also become less sharp.
This is the basic principle on which photography works: A pinhole camera is a much smaller version of the same thing, which is relatively easy to make and which can be used to produce real photographs using film or photographic paper. All cameras basically use this simple process but make use of lenses etc. to give the photographer more control over the light being allowed into the camera. Similarly, the use of lenses and mirrors in large camera obscuras will make the device more sophisticated, allowing the user much more control over the brightness of the image, and even allow for the projection to be turned the right way up.
It's relatively easy to turn any room into a temporary camera obscura. See the 'links' page for links to websites and videos that will describe how you can do this yourself.