A pinhole camera is basically a box that keeps all light out, with a small hole on one end to let a focused bit of light through. If a picture is desired, a piece of film is attached to the other end of the box to capture the light that comes in. The camera obscura is essentially a large pinhole camera, and as long ago as the 15th century, Leonardo Da Vinci was speaking in awe of the simplicity and magnitude of the device. The basic principles of the pinhole camera were outlined by Euclid in Greece over 2300 years ago.
To make a reasonably good pinhole camera, start with a sturdy box. Many people suggest an oatmeal container. Drill or cut a small hole in the box, about midway up its surface. Paint the inside of the box black--spray paint works best for this. Cut a small piece of an aluminum can, and pierce a very small hole in it; 1/100th of an inch (.25mm) is ideal. Glue the aluminum piece to the inside of your box, so that the tiny pinhole is positioned over the larger hole you made in the box. Now by shuttering your pinhole, and placing film inside the box opposite the hole, you are ready to take a picture by simply exposing the pinhole. Just like a standard camera, you will wind up with negatives that can be developed in a darkroom into full prints.
A pinhole camera functions essentially the same way a stock camera works. The difference is one of resolution. While a lens takes scattered beams of light and focuses them into a cone or ray it them projects on to film (simply speaking), a pinhole works by allowing such a small aperture that the beam coming in is quite small, and therefore remains relatively unscattered. Unscattered beams create clear pictures. The larger the pinhole, the more scattered the light, and the less sharp the resulting image.
Pinhole cameras have great appeal for teaching basic optics to children and adults alike, because they are easy to make out of cheap materials and the resulting photographs are fun and exciting to create. By changing the time of exposure, and the distance of the film from the pinhole, one can effectively control the f-stops of the photograph, creating a wide variety of effects.
Pinhole cameras also offer an easy real-time way to view solar eclipses, which are harmful to view directly. By cutting a very small pinhole in a piece of cardboard or aluminum, and placing it in front of a flat surface, a 'video' of the eclipse is projected for one to watch with no damage to the retina. (Do not use the pinhole to directly view the sun).
Professional pinhole cameras are available for about $100-$400 (US dollars). Because of their incredibly small size they are ideal for covert surveillance. Most professional-grade pinhole cameras are digital, though some cheaper models, not intended for surveillance, are available for use with 35mm film.