How does a compass work? <!-- geomagnetism -->
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USGS Frequently Asked Questions

Question: How does a compass work?

Answer:

An old compass.The needle of a compass is a small magnet, one that is allowed to pivot in the horizontal plane. The needle experiences a torque from the ambient magnetic field of the Earth. The reaction to this torque is the needle’s preferred alignment with the horizontal component of the geomagnetic field. The ‘north’ end of the compass needle is simply the north end of the magnet, and it is the end of the compass needle that points in the general direction of the geographic north pole; naturally, the ‘south’ end of the compass needle is the south end of the magnet and it points in the opposite direction, towards the general direction of the geographic south pole. Having said this, the preferred directionality of a compass can be affected by local perturbations in the magnetic field, like those set up by (say) a near-by electrical system; a compass can also be affected by local magnetization of the Earth's crust, particularly near large igneous or volcanic rock deposits.

Source of this FAQ:
http://geomag.usgs.gov/faq.html

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