In essence, a fuel cell works by catalysis, separating the component electrons and protons of the reactant fuel, and forcing the electrons to travel through a circuit, hence converting them to electrical power. Another catalytic process takes the electrons back in, combining them with the protons and the oxidant to form waste products (typically simple compounds like water and carbon dioxide).
In the archetypal hydrogen–oxygen proton exchange membrane fuel cell (PEMFC) design, a proton-conducting polymer membrane, (the electrolyte), separates the anode and cathode sides. This was called a "solid polymer electrolyte fuel cell" (SPEFC) in the early 1970s, before the proton exchange mechanism was well-understood. (Notice that "polymer electrolyte membrane" and "proton exchange membrane" result in the same acronym)
On the anode side, hydrogen diffuses to the anode catalyst where it later dissociates into protons and electrons. The protons are conducted through the membrane to the cathode, but the electrons are forced to travel in an external circuit (supplying power) because the membrane is electrically insulating. On the cathode catalyst, oxygen molecules react with the electrons (which have traveled through the external circuit) and protons to form water — in this example, the only waste product, either liquid or vapor.
In addition to this pure hydrogen type, there are hydrocarbon fuels for fuel cells, including diesel, methanol (see: direct-methanol fuel cell) and chemical hydrides. The waste products with these types of fuel are carbon dioxide and water. 
The materials used in fuel cells differ by type. The electrode–bipolar plates are usually made of metal, nickel or carbon nanotubes, and are coated with a catalyst (like platinum, nano iron powders or palladium) for higher efficiency. Carbon paper separates them from the electrolyte. The electrolyte could be ceramic or a membrane.
A typical PEM fuel cell produces a voltage from 0.6 V to 0.7 V at full rated load. Voltage decreases as current increases, due to several factors:
* Activation loss* Ohmic loss (voltage drop due to resistance of the cell components and interconnects)
* Mass transport loss (depletion of reactants at catalyst sites under high loads, causing rapid loss of voltage)
To deliver the desired amount of energy, the fuel cells can be combined in series and parallel circuits, where series yield higher voltage, and parallel allows a stronger current to be drawn. Such a design is called a fuel cell stack. Further, the cell surface area can be increased, to allow stronger current from each cell.
Fuel cell design issues
* Costs. In 2002, typical cells had a catalyst content of US$1000 per kilowatt of electric power output. The goal is to reduce the cost in order to compete with current market technologies including gasoline internal combustion engines. Many companies are working on techniques to reduce cost in a variety of ways including reducing the amount of platinum needed in each individual cell. Ballard Power Systems have experiments with a catalyst enhanced with carbon silk which allows a 30% reduction (1 mg/cm² to 0.7 mg/cm²) in platinum usage without reduction in performance.
* The production costs of the PEM (proton exchange membrane). The Nafion® membrane currently costs €400/m². This, and the Toyota PEM and 3M PEM membrane can be replaced with the ITM Power membrane (a hydrocarbon polymer), resulting in a price of ~€4/m². in 2005 Ballard Power Systems announced that its fuel cells will use Solupor®, a porous polyethylene film patented by DSM.
* Water management (in PEMFCs). In this type of fuel cell, the membrane must be hydrated, requiring water to be evaporated at precisely the same rate that it is produced. If water is evaporated too quickly, the membrane dries, resistance across it increases, and eventually it will crack, creating a gas "short circuit" where hydrogen and oxygen combine directly, generating heat that will damage the fuel cell. If the water is evaporated too slowly, the electrodes will flood, preventing the reactants from reaching the catalyst and stopping the reaction. Methods to manage water in cells are being developed by fuel cell companies and academic research labs.
* Flow control. Just as in a combustion engine, a steady ratio between the reactant and oxygen is necessary to keep the fuel cell operating efficiently.
* Temperature management. The same temperature must be maintained throughout the cell in order to prevent destruction of the cell through thermal loading. This is particularly challenging as the 2H2 + O2 -> 2H20 reaction is highly exothermic, so a large quantity of heat is generated within the fuel cell.
* Durability, service life, and special requirements for some type of cells. Stationary applications typically require more than 40,000 hours of reliable operation at a temperature of -35 °C to 40 °C, while automotive fuel cells require a 5,000 hour lifespan (the equivalent of 150,000 miles) under extreme temperatures. Automotive engines must also be able to start reliably at -30 °C and have a high power to volume ratio (typically 2.5 kW per liter).
* Limited carbon monoxide tolerance of the anode.
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