What exactly is an information systems? How does it work

You mean "an information system"? (singular?)

http://www.answers.com/topic/information-system
Read ALL the definitions; keep scrolling down to see how this term is applied in different settings.

http://www.google.com/search?q=how+information+systems+work&ie=utf-8&oe=utf-8&aq=t&client=firefox-a&rlz=1R1GGLL_en___US379
There are several articles in here that will help you understand how information systems work -- depending on the setting.