"What we're really doing here is trying to build a star on Earth," said Laban Coblentz at the International Thermonuclear Experimental Reactor (ITER), a massive fusion reactor being built by 35 countries in southern France. Fusion is what keeps stars, including our own sun, burning bright. Nuclear Fusion is also the principle behind how a hydrogen bomb works.
As a source of energy, fusion works like this:
You take two gases called deuterium and tritium and you heat them under pressure to at least 100 million degrees Celsius. That's 180 million degrees Fahrenheit. These substances will get so hot that they change from gas to plasma. Then they fuse together releasing a burst of additional heat. That burst is called a fusion reaction. The heat boils water into steam, which drives a turbine and generates electricity that powers your neighborhood. To be commercially viable, you have to create more energy than the original energy you used to heat the fuel but so far we haven't been able to figure that part out. Yet.
You can read more about nuclear fusion in this article by Thom Patterson of CNN.