I am a big fan of explaining things in very simple terms. I teach others how to make small and profitable affiliate websites at my free tutorial site called 6StepNicheSites.com. I find a simple explanation is enough to get enough information going without causing info-overload!
So, the simple answer is - An affiliate website makes money by selling other peoples stuff and, in turn, making commissions off those sales. Your affiliate website is like a middle man - you don't have inventory, you are not responsible for order processing or customer service - all you do is create a small websites that drives traffic to the product you are promoting. If the visitor buys something, you make money.
How Are My Commissions Tracked So That My Affiliate Website Gets Credit For My Sales?
This question seems confusing at first, but again, let me resort to very simple language to explain. When you sign up as an affiliate for a program of product, you are given special links to use on your affiliate website. When someone clicks your special link, the customer is tracked with a special code that credits you for the ending sale.
What Are Affiliate Websites Called?
Affiliate websites are also referred to as "niche sites" or "niche websites". These small affiliate websites are focused very tightly on a certain subject (or 'niche'). A profitable niche website will have good content (articles, etc) that are directly related to the information that someone who is interested in that topic would search Google for.
Niche websites do not need to be large websites in order to be successful and profitable. Usually 10 pages or so is plenty enough information to 'pre-sell' a visitor and entice them to click through your affiliate link to the product you are advertising. In the case of niche websites, sometimes 'less is more'.
The prime objective for affiliate website owners (or niche site owners) is to not only build a niche site, but create MANY niche websites. These small websites will, over time, generate a wonderful passive and recurring income. As much as I hate to say something this cheesy, but affiliate websites are the best online business model for making money 'while you sleep'. Once you get the niche site built and getting traffic, you are pretty much done with the work part - then it is simply about collecting income. Oh, and making MORE affiliate websites!