Inflation and deflation are the results of a change in either the amount of currency circulation through an economy, or the total value of goods and services produced by the economy.

A good way to explain this is via a small town with one bank that prints money, and five farming families. The bank prints 5 promissory notes, which we'll call simoleons for fun, and gives one to each family. The value of each family's farm and crops grown, assuming all families are equal, then, is one simoleon.

The next day, one more family comes to the town, builds a house and starts farming a different crop. The older families want some of the crop, and so they offer the new family a fraction of their simoleon for the new vegetables. Since there are now only 5 simoleons for 6 family farms, the value of each simoleon has increased, and thus their town has experience deflation.

It is common practice, in such a situation, to print one more simoleon to prevent deflation.

The next day, there is a large storm, and the bank building is damaged. In order to help pay for the repairs, the bank prints 5 more simoleons. Now there are 10 simoleons for only 6 family farms in the town, so the value of each simoleon has gone down, and the cost of each family farm has gone up to slighly less than 2 simoleons a farm. The town has experienced inflation, and any other towns they trade with will now want 2 simoleons for every 1 simoleon they used to accept while trading. The price of goods for the simoleon town has doubled.

In the US, the rate of the mint producing money has been constant, while the economy has slowed (so less value is created to keep up with the new money) and government debt increase, meaning more value is leaving the country than entering. As a result, the US dollar has been going down in value, and is almost worth almost 1/2 a british pound.