How does VBR work, exactly?

MP3s are broken up into FRAMES. Each frame is a block of data representing a fixed time span. For a 16-bit stereo 44.1khz MP3 file, the time span is about 0.02612 seconds. So each frame is a short little snippet of the sound of the song.

VBR allows each of those frames to be a different encoding bit rate. For instance, one frame might be encoded at 320kbps because it has a lot of high frequency content, while another frame might be encoded at only 96kbps because it's got relatively simple low-frequency sound and doesn't need a lot of storage space to represent the sound clearly.

So VBR gives you more "bang" for your storage "buck", by allowing the file to only use up the bits when it needs the higher quality.