I heard an interesting description of bitcoin that sort of clarified it in my mind.
Imagin a society where the currency is large rocks. You can trade large rocks with each other for goods and services, and you can even go to work in the rock mine to mine your own new rocks.
Everyone is happy with the system.
But on the way back from the rock mine, you drop a large rock into the lake. It still exists, but it is underwater.
Well, as long as you and everyone else agrees that you still own that rock, you can buy and sell the rights to own that rock, as long as everyone is in agreement.
That is bitcoin, everyone participating agrees on the value and ownership of bitcoins, but no actual rocks exist.
Hmmm ... that sounds like a description of the US Dollar ... :-) ...