Short selling involves borrowing shares of a security from a broker and selling them, with the hope that the share price will fall so they can be repurchased at a lower price, returning a profit. It is a three-step process of borrowing shares, selling them immediately, and then repurchasing them to return to the lender, pocketing the difference if the price declined. Short selling allows investors to benefit from a falling stock price and provides sellers to balance out buyers, helping the market function properly.