you progress along the lines as you win, till you reach the end (ie you become upper bracket, aka winners bracket, winner)
if you lose, you drop down to the lower bracket, and then keep progressing till the end (ie you become lower bracket, or losers bracket, winner), whereupon you play the team that has reached the end in the top half. so the upper bracket winner vs lower bracket winner is the grand final, and whoever wins that, wins the whole thing.
concept behind it is easy, you get eliminated from the competition if you lose to two teams. so there will have been at least 2 teams better than you in the competition, therefore, you didnt deserve to be in the grand final. everyone gets 2 chances, so to speak, before being eliminated.
hope that made sense.
edit:
i took the liberty of putting up a putty bracket (you can use it too, if you want, just post here who i should pm pwd to, i'll be happy to tell you):
i just did some random winners/losers, seeding according to first post in this thread, with a few upsets here and there, so anyone interested can see how it works.
as you can see, pit(1) gets knocked down to loser bracket after surprise defeat by hidden monsters COLD HARD CASH
then they work their way through lower bracket, shedding blood, sweat and tears, till they win lower bracket. da cold hard cash wins upper bracket. they have a showdown in grand finals, with pit(1) emerging victorious due to excess consumption of beer on the night of the finals, giving them reckless courage and audacious charm. they get booked for playing under influence the next day though, oh well.