try to picture two fans facing each other. One is off and the other is being driven by the motor. The one being driven blows air across the 2nd one which causes it to spin. Now, instead of air, they are in a closed case filled with a non-compressible oil. This is the basic conept of a stall converter. It's more complex then this but you get the idea. By varying the angle of the fan blades, you can control the fluid flow characteristics to get the desired results.
When a converter "locks up" the clutch plates on each fan are in contact with each other - now, power is directly connected to the drive train instead of through the fluid medium.