Supposedly it uses information from gps and what's already available through google maps to generate the pokemon critters. Woodland creatures near woods, water types near lakes or rivers, ect ect. Landmarks are made into pitstops or pokestops or whatever. These areas you are able to replenish your supplies or items used to catch the critters, hence all the cars you see parking next to churches and cemeteries out of town.
There's something they call gyms where you can fight other people's critters they have collected. Not too sure what makes a gym but I think it's places like court houses & post offices. Apparently you find the pokecritters by turning on your cell camera and looking around for them. That might be why kids are blindly running around like zombies.
No, I don't play it but you cant go 10 minutes without hearing something on the radio or see on tv about it.