First I'd like to clarify:
The "Generate coins" option in the client is a useless relic and you should not activate it. If you want to mine, you need specific hardware and software.
Now what does that mean?
It means creating a hash of the previous block that starts with at least a bunch of zeroes.
A few other things go into the hash, such as the merkle root of the transactions.
What is it good for?
To enable a new transaction (only one?)
To prove that some work was put into validating a specific timeline, to prevent people from altering it willy nilly. Every block contains several transactions.
Are they stored somewhere?
Only if it hits the target, esp. that there are enough leading zeroes. Then it's transmitted to the network and used for a transaction.
Right, but it's not "used for" as much as it "verifies", and it's several transactions.
Who would need so many hashes?
Everyone who wants to make a transaction
Or to verify that some specific order of events is the established timeline.
Hashes of what?
Of the previous block plus that ominous nonce. The nonce is changed every time you fail to compute a useful hash, which means it has not enough leading zeroes.
Plus some other stuff.
With everyone in the world producing huge amount of hashes, wouldn't all hashes of all sorts be produced at some time, breaking every encryption system?
Yes?
No.
How many transactions can be validated with one block?
AFAIK currently each block is limited to 1MB which is about 1000 transactions. This may change in the future.
What is the chance for me to find a valid block which won't be accepted (and rewarded) by the network?
That depends, but I'd say a found block has about 1% chance to eventually be rejected.
good one..
