For an understanding on how shorting works in general see here.
Anyone can allow their shares to be borrowed (requires a users permission first before their shares are borrowed, not on a case by case basis but in general, that is you offer lending to the market) and get a commision if a profitable short is made, once the short is settled the user gets their shares back plus their commision (if applicable).
The person doing the short will be required to have enough btc to cover their position so that if the short begins to cost them something like 90% of the btc they have available they will be forced to settle the short and take a loss.
The risk to the person lending is that the shares cannot be bought back from the market at any price, in which case the best they can hope for is the btc that the shorter forfits (the shorter will lose all the btc in their account, going to the lender).
Should be interesting.