well, i always thought it was just waterhunting using a forked stick, but I guess there's a lot of dowsing methods and a lot of things to be found underground besides water (oil pipelines, whatever).
no one really knows how it works (or even if, I guess), but my ex-roommate tells me it's cheaper to pay a professional dowser a few hundred bucks before they start digging to see if they're at the water line they're looking for, which costs thousands and sometimes has to be repeated to get the right spot. more often than you'd think, the dowser works, at a much higher success rate than just guessing would give you.
the most common way involves walking around with one of those forky sticks until they feel it twitch downward. sometimes it's said to be so violent the bark strips off the stick right in your hands as it jerks down. based on where and how hard it twitches, the dowser can supposedly tell vaguely how far down water is...