Git's power lies in its hidden .git directory, created when you run `git init`. This folder contains the entire version control system, from the HEAD pointer to the objects/ store that holds every file snapshot. Understanding its structure demystifies Git's operations.

The core mechanism stores whole file snapshots, not line-by-line changes, making Git fast. Key components include the index (staging area), refs for branches and tags, and hooks for automation. The objects/ directory holds blobs, trees, and commits, forming a content-addressable database.

When you run `git add`, Git creates a blob object and records its reference in the index. A `git commit` then generates a tree object and a commit object, updating the branch reference. This workflow moves changes from your working area to a permanent snapshot in the repository history.