Not many people bother to think about what money really is, in a sense it is like a commodity and various currencies are traded much like other commodities. It has been many things in the past and many systems of money have been used.
In essence it is merely a convenient medium of exchange that represents our labor and is dependent on mutual trust to continue to do so.
How a system of money is constructed and managed is very complicated and the deeper you look into it, the more complex it becomes. Much like complex engineering problems or studying the weather there are huge numbers of variables, in addition there is a large element of human irrational behavior thrown into the mix. I would venture that not many humans actually understand it completely.
A brief summary for those wishing to start thinking about it:
Money - Wikipedia, the free encyclopedia