Answer:
It uses similar theory as in the old days when ships took bearings on known reference points to chart its current location. Instead of bearing angles, GPS uses distances from the satellites (the satellites are constantly moving, (to keep up with the same spot on earth) but they 'know' where they are and transmit this data as well as a timing signal). If you have a signal from at least 4 different satellites, then your GPS can calculate its current position as well as get the correct current time. Rather than go into more detail here, I refer you to the related link, which I think does an excellent job of explaining it.