Composting involves mixing yard and household organic waste in a pile or bin and providing conditions that encourage decomposition. The decomposition process is fueled by millions of microscopic organisms (bacteria, fungi) that take up residence inside your compost pile, continuously devouring and recycling it to produce a rich organic fertilizer and valuable soil amendment (see Using Your Compost To Amend Soils).
Sound complicated? It's really not. All you need to know about composting is a basic understanding of a few simple principles, and a little bit of elbow grease. Nature does the rest.
Note: Decomposition, or the composting process, occurs constantly and gradually around us everyday. The dark, rich soil covering the forest floor is an excellent example of this. When we compost, all we're really doing is speeding up Mother Nature.
Location & Appearance
First you'll need to select your location for composting. Where you put it depends on function and aesthetics.
In terms of appearances and good relations with your neighbors, you probably don't want to place your bin on your front lawn next to the mail box. (Your neighbors, and not to mention your mail man, will also appreciate a more behind-the-scenes location.)
Instead, opt for the backyard, or, if you don't have one, then a compost bin located in your basement can do the trick.
Ensure composting success with a home compost bin available at Planet Natural.
Want to build your own? Here's one simple solution: convert old shipping pallets (which you can usually pick up for free) into a compost "repository." Use one for the bottom. Pound in metal support poles and then add pallets by slipping them over the support poles to make your bin's walls and you're all set. The University of Missouri Extension offers several other examples for building a bin.
You can also skip the bin (a structure isn't essential) and just have a compost pile or heap. In terms of appearances -- and if your homeowners association is fussy -- you may want to screen the pile from view by planting shrubs or a fence. You'll also probably not want it by your picnic table or other areas outdoors where you entertain.
From a functional standpoint, you'll need a place with good air circulation. Don't place it next to your home or other wooden buildings as the decomposing scraps and resulting compost may cause the wood to rot. Partial shade is a good idea so the compost doesn't get overheated. Also make sure the spot of land where you place your heap gets good drainage.
Close to the garden and to a water source are both good places forbuilding your compost pile since it will be easier to move the materials to and from the garden and easier to water it. Another idea may be to place it near your kitchen to make it convenient to place table scraps on the pile or in the bin.
Size
Make your pile no smaller than 3' x 3' x 3'. In fact, this is probably the perfect size. It's sufficient enough to "cook" your waste and transform it into compost, but not so large that it will become unmanageable and hard to turn.
Moisture
The microbes that do your dirty work in the compost pile require water for survival, but it can be hard to judge how much water to add and when. Too much water means your organic waste won't decompose and you'll get a slimy and smelly pile that could well answer to the name "swamp thing." Too little water and you'll kill the bacteria and you won't get your compost (see Monitoring Moisture).
One rule of thumb: the more green material (cut grass, weeds, leaves) you put in, the less water you'll need to add. In fact, if you need to add dry ingredients such as straw or hay, soak the material first in water so it won't dry out your compost pile. In general your compost should be moist, but not sopping wet.
If you are backyard composting and you get a lot of rain, build a roof over the pile. This can be as simple as a tarp. The reason you want to give your compost pile more shelter is because nutrients, or leachates, leak out when it rains. That's not such a problem in a place where rainfall isn't heavy, but if you get a lot of rain where you live, it can make a big difference. Too much water in the pile will slow down the process and can also make it slimy and icky.
Aeration
Oxygen is also required by many of the microorganisms responsible for successful composting. Give them adequate ventilation and they will take care of the rest (see Aerobic Decomposition). You can make sure that the bacteria in your compost gets sufficient air by turning the pile often and well. Use a pitch fork, spade or compost aerator to mix your pile. If you've got a compost tumbler, you've got it easy. Just crank that lever. Don't aerate your compost and it will break down slowly, resulting in a slimy, dense, stinky pile. It's also a good idea to turn the contents since it rearranges the decaying material. With a little care, you can move the less decomposed material on the edges to the middle of the pile to heat up.
Temperature
As they eat, the organisms responsible for composting generate large amounts of heat, which raise the temperature of the pile or compost bin and speeds up decomposition. A compost pile that is working well will produce temperatures of 140-160 degrees Fahrenheit. At these temperatures almost all weed seeds and plant diseases are killed. A "very hot" compost pile will generate temperatures of up to 170 degrees Fahrenheit for up to a week or more. Use a compost thermometer to measure the exact temperature at different locations inside the pile.
Note: As organic material in a compost pile heats up it breaks down and takes up less space. A compost pile can shrink up to 70% as it "cooks."
Adding Materials
When adding organic waste to your compost, don't squash the materials down to make more space. Squashing the contents will squeeze out the air that microbes in the compost pile need to turn your garbage into gold. (Instead you'll be promoting the anaerobic microbes, which also do a good job converting carrot peels and other organic matter into compost but tend to be a lot smellier.)
Also be strategic about filling your bin. Include a mixture of brown fibrous ingredients and greens. A well-balanced "diet" will ensure that composting doesn't take too long and that you don't end up with a slimy, smelly heap. Also shred, dice or otherwise make scraps smaller, which will help the resident bacteria do a good job in converting the garbage into compost.
Finally, after you've added kitchen vegetable waste, throw some leaves or grass clippings on top of it. This will help keep things balanced, reduce smells and make your compost bin less attractive to critters who are trying to sniff out a free meal.

http://www.composting101.com/how-it-works.html