Bitcoin is a virtual currency. Someone created this program or system. No one knows who. Satoshi Nakamoto but this is an alias. So no one really knows the exact person.
When you run the program, it's like an accounting ledger. It tracks the transactions of EVERYONE using it. So if there are 10 accounts on the Bitcoin system, everyone can see everyone's balance. But you don't know who owns the account. This is good cos it's hard to hack. Cos even if you hack one system, there are 9 other folks who have the correct records.

So how are Bitcoins created. Bitcoins are "mined". That's just the term. 
So some users "person C" can contribute to the system by processing payments. So Person C can keep his computer on and when person A wants to pay person B, person C's