There are satellites in outer space that basically broadcasts signals precise signals that the GPS units will pick up. By receiving three or more signals from different satellites, the GPS unit is able to figure out where it is by measuring the time it takes the signal to get from the satellite to the receiver.
Think of it like how on TV shows, they show how phone companies can triangulate a cellphone by locating which cell antennas are receiving a signal from a cell phone. But GPS is a much more complex system.
All the map data is stored on the GPS device itself. With the information that it gets from the satellites, it's able then to map its location and display it on the screen for you.
There's no monthly charge or cell phone connection of any kind. These GPS units in particular have map data on SD Memory cards that can be updated by downloading new maps in the future and saving it onto the memory card. Some other systems, like the RB1, has map data on a DVD and you can buy updated dvd's.
Some of the smaller handheld ones in the past could only hold maps for a small area and needs to be hooked up to a computer to update them. These in particular has map data for the entire country (maybe even more) on a memory card.
That's basically it in a nutshell.
And again, I take the time to write out a detailed response and someone else swoops in and makes me look like an ass. Haha.