First, you have to understand what a selling short is:
You (individual trader) borrow EXISTING stock from someone else and sell it for price A. An entry is made in your account. You later buy the stock back at price B to cover your "shortage" entry in your account (you buy to give back the shares you borrowed). If the price went down (price A greater than price B) you made money, the difference A-B. if the price went up ($A < $B), you lost money. So, you sell short a stock that you think will go down.
This is a very simplified example. Notice the word EXISTING. Now, for a very good description of what goes wrong with the process, see the following link:
http://www.ncans.net/intro%20to%20naked%20short%20selling.htm
The deeper you dig into this, the worse it gets... This makes Enron, Worldcom, S&L debacle, etc. look like a Sunday picnic.