Basic concept of GPS

A GPS receiver calculates its position by precisely timing the signals sent by the GPS satellites high above the Earth. Each satellite continually transmits messages containing the time the message was sent, precise orbital information (the ephemeris), and the general system health and rough orbits of all GPS satellites (the almanac). The receiver measures the transit time of each message and computes the distance to each satellite. Geometric trilateration is used to combine these distances with the location of the satellites to determine the receiver's location. The position is displayed, perhaps with a moving map display or latitude and longitude; elevation information may be included. Many GPS units also show derived information such as direction and speed, calculated from position changes.
It might seem three satellites are enough to solve for position, since space has three dimensions. However a very small clock error multiplied by the very large speed of light[5]—the speed at which satellite signals propagate—results in a large positional error. The receiver uses a fourth satellite to solve for x, y, z, and t which is used to correct the receiver's clock. While most GPS applications use the computed location only and effectively hide the very accurately computed time, it is used in a few specialized GPS applications such as time transfer and traffic signal timing.
Although four satellites are required for normal operation, fewer apply in special cases. If one variable is already known (for example, a ship or plane may have known elevation), a receiver can determine its position using only three satellites. Some GPS receivers may use additional clues or assumptions (such as reusing the last known altitude, dead reckoning, inertial navigation, or including information from the vehicle computer) to give a degraded position when fewer than four satellites are visible.
Credit: http://en.wikipedia.org/