CSS Modules work by reading your CSS file and generating unique class names for each style. When you import the CSS Module in your component, you get an object mapping your original class names to these unique names. Using these in your JSX applies the unique class names to elements. This ensures styles only affect the component they belong to, avoiding conflicts with other components. The execution steps show reading CSS, generating unique names, importing styles, rendering with scoped classes, and browser applying styles. Variables like 'styles' hold the mapping, and 'className' holds the unique class applied. Beginners often wonder why class names look different in HTML; it's because of this unique renaming. Also, the same class name in different components won't clash because each gets a unique name. Changing a CSS class name changes the unique name generated, reflected in the import and render steps.