In 1971 IBM introduced the first floppy disk (then called a “memory disk”).  Invented by a group of IBM engineers led by Alan Shugart, it was an eight-inch plastic disk that, like a regular recording tape, was coated with magnetic material—specifically magnetic iron oxide.  The purpose it served can be put into simple terms: data was to be written onto the disk, and in turn data was to be read from the disk.
However, initially, when it first came out, the floppy disk was merely a read-only device meant to hold microcodes and diagnostics for large IBM mainframe computer systems (so it was basically used to fill other types of data storage devices).  And back in the day, this floppy disk could hold less than 100KB.  Technology has come a long way.
In 1973 the floppy disk evolved to have the read/write capability and hold about 250KB, and it went from there from a one-side to a two-side disk with greater storage capacities.  Alan Shugart, for one, developed the five and quarter inch disk drive and diskette for the Wang Laboratories, following Wang’s demands for a smaller disk and drive available for use with his desktop computers.  Later on, in 1981, Sony will introduce the first three-and-half inch drives and diskettes that will be the immediate predecessor of the much-used floppy disk today.
The floppy disk operates like so: the disk drive holds the center of the floppy and spins it like a record inside its housing (we hear the CD spin when it’s put inside its drive).  A read/write head (like the head on a tape deck) contacts the surface of the floppy through an opening in the plastic shell.  That when you hear the sort of sliding ‘click’ when the drive slides open the metal covering on the top (we’ve all played with this before) to get access to the floppy drive. 

*Pictures from http://www.somalisoftware.com/aqoonta/pc/images/
broken_floppy_disk.jpg and http://www.webopedia.com/FIG/FLOPPY.gif, respectively

Sources:
Accurite. A Brief History. 12 Oct 2003. <http://www.accurite.com/FloppyPrimer.html>

Bellis, Mary. The Invention of the Floppy Disk Drive-Alan Shugart. 12 Oct 2003.<http://inventors.about.com/library/weekly/aa110198.htm>

Somalisoftware. Broken Floppy Disk. 12 Oct 2003. <http://www.somalisoftware.com/aqoonta/pc/images/broken_floppy_disk.jpg>

Webopedia. Floppy Disks. 12 Oct 2003. <http://www.webopedia.com/FIG/FLOPPY.gif>

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