The Federal Reserve requests offers to sell bond from banks. It then accepts the best offers up to the limit of its desired purchase. The ownership of the bonds passes to the Fed and the Fed adds money to the reserve account of the bank selling. The selling bank now has excess reserves with which it can lend.
Muncie Birder is wrong on this one when he talks about a wash. If the banks buy more bonds, then the money passes to the seller and is still in the economy. It is only a wash if they were to buy from the Fed and the Fed would only sell if it reversed its position and wanted to drain capital from the system.
That is exactly how they do it. Buy buying bonds, they trade money for the bonds. The banks then have money instead of bonds and can in theory lend out the money. Actually, probably what they will do is buy more bonds, making it a wash.
