RewriteEngine On
Turns on mod_rewrite (providing it's been enabled in the apache configuration)
RewriteCond %{REQUEST_FILENAME} !-f
If the request is not for an existing file...
RewriteCond %{REQUEST_FILENAME} !-d
... or for an existing directory..
RewriteRule ^(.*)$ index.php?q=$1 [L,QSA]
...then redirect everything to ' index.php' in the current folder, assigning the requested url to the 'q' variable.
The [L,QSA] part tells mod_rewrite to skip any remaining rules (L for Last) and append a querystring, if any.

I'd recommend you take a look at the .htaccess from a default Drupal install; it's got a few extra rules that help with security (eg preventing access to .module files).