Google makes money primarily through sponsored search results... that is, when you put in a search for something and they have two or three sponsors at the top, above any actual search results... the paid results don't necessarily have anything to do with relevance, and there's currently a bit of a legal controversy over use of trademarked brand names because if you were, say McDonald's, you could pay Google to have your restaurant chain come up when someone puts in a search for Burger King or Wendy's.

Yahoo! makes money in part through similar methods and in part through sales of "premium" services. Yahoo! has always had free chat, free e-mail, and (since merging/acquiring Geocities) free webpages... those are there to get people in the door, give them a service that almost does what they want but not quite and then they'll be frustrated into paying for the full version.

I gather more things like this will happen in the future. The thing is that it's not just kids on web forums that wonder how Yahoo! is supposed to make money... Yahoo! is starting to wonder that, too. :P

Ah, it's magic, ok gotch ya.