Well the super short version is: a SD is a smart contract representing $1 of debt from the Steem blockchain at large to the holder of the SD. That contract can be sold, in which case it's worth about a dollar, since it represents $1 worth of steem at some point in the future; or it can be executed. If it's executed, the blockchain locks it up for a week, then prints $1 worth of new steem at the end of the week and gives it to the SD holder, and destroys the SD.

The one-week delay is necessary to prevent market manipulation: a whale could dump funds on the markets skewing the price, then execute the contract at a biased price. To prevent this, the week-long delay is used to raise the bar; the attacker would have to maintain a manipulated price for half of that week (or so, I don't know the exact timeframe) to affect the price his contract executes at.