The hash in a magnet URI is of the info dictionary in the .torrent file. It's used to query the BitTorrent DHT for peers running the same torrent. Once another peer is found, your client will download the full metadata file from it, and from there it works just like any other BitTorrent download.

http://bittorrent.org/beps/bep_0005.html http://bittorrent.org/beps/bep_0009.html