Bascially, you just install software almost like you upload web pages. Through telnet/SSH you can navigate the machine as if it were sitting right next to you. This allows you to install/configure everything.
I really don't have time to go into exactly how they work (not sure what you need here), but esentially, it is nothing more than a computer, just like your home PC. Obviously the software and OS are different, but past that, itis a mobo, processor, HD, etc., in a case hooked up to a connection etc., etc., etc.