Central air conditioners are split systems: an outdoor unit (the condensing unit) and an indoor unit (air handler). The function of an air conditioner is to transport heat from one station to another. The vehicle your system uses to carry the heat is called a refrigerant, commonly referred to as Freon. Air conditioners cool your home by removing heat from the indoor air and transferring that heat to the outdoor air. This heat is extracted from the home by passing indoor air across a refrigerant coil in the indoor unit. Lines then carry the heat to the outdoor unit, where it is released to the outside air. The cooling cycle continues until the indoor temperature reaches the thermostat setting.
While it's keeping you cool, your air conditioner also works as an effective dehumidifier. As warm air passes over the indoor evaporator coil, it can no longer hold as much moisture as it carried at its higher temperatures. The extra moisture condenses on the outside of the coils and is carried away through a drain.