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They essentially work as a private currency. Remember money itself is worthless and was created as a proxy to make ancient commerce more convenient
Imagine you created an isolated community of 10k people and started your own currency named "MyCoin" to trade goods and services, it's similar and will work to anyone who accepts your "MyCoin"
Just like any currency its value can up and down. The number of "MyCoins" available is not infinite (remember you created enough currency for 10k people) and if let's say 10 million people wants to buy MyCoin for whatever reason what's going to happen with the exchange rates? They will skyrocket, this is how so many people makes money out of criptocurrency even if they never used their bitcoind to buy a thing on their lives
