A Fuel cell converts hydrogen into electricity by chemically binding it to oxygen, from which results water. It is like a battery that is constantly fed with fuel. It is an important part of the hydrogen economy. Note, though, that, unlike oil, hydrogen is not found in nature and is not an energy source, but an energy carrier. It has to be produced first, and if this is done by burning fossil fuels, it does not help against climate change . But, the hydrogen fuel cell will help against climate change in future, because scientists trying to find new way to make hydrogen without using fossil fuels.
Water is a molecule that consists of one oxygen atom and two hydrogen atoms. It takes energy when separating into oxygen and hydrogens. And it releases energy when they are recombined. A fuel cell does the latter. Hydrogen (the energy source) and oxygen (which can come in the form of plain air) are fed into it, separated by a screen that will only let positively charged hydrogen (H+) through to the oxygen (O). At the hydrogen side, a metal plate helps the electrons of the hydrogen atoms to split off (it acts as a catalyst). The now positively charged hydrogen atoms pass through the screen, while the electrons enter an electric circuit. This produces the electricity required. At the other end of the electrical circuit, it connects to the oxygen side, where the electrons then combine with the positively charged hydrogen and the oxygen to form water (which then comes out the exhaust pipe). These three (H+, O and electrons) 'want' to combine and thus 'pull' the electrons through the electric circuit, which then creates the desired energy.
Fuel cells make electricity by reacting oxygen and hydrogen. Efficiency is very good(about 40~60%). But they have a maximum efficiency of 80% if exhausting heat is used during reacting process. Also, Fuel cells can use various fuels, for example, natural gas, methanol, LPG(Liquid Petroleum Gas), naphtha, kerosene etc. This is because it is easy, not only to gain energy sources, but to not burn a fuel source as well. Fuel cell technology is one of the future energy sources that will play a part in environmental conservation.
There are many uses for fuel cells — right now, all of the major automakers are working to commercialize a fuel cell car. Fuel cells are powering buses, boats, trains, planes, scooters, forklifts, even bicycles. There are fuel cell-powered vending machines, vacuum cleaners and highway road signs. Miniature fuel cells for cellular phones, laptop computers and portable electronics are on their way to market. Hospitals, credit card centers, police stations, and banks are all using fuel cells to provide power to their facilities. Wastewater treatment plants and landfills are using fuel cells to convert the methane gas they produce into electricity. Telecommunications companies are installing fuel cells at cell phone, radio and 911 towers. The possibilities are endless.
Source: Wikipedia (All text is available under the terms of the GNU Free Documentation License)
For More Information: Fuel Cell Background Projects & Experiments