The white part (in the photo) is the battery and circuitry.

The top part (black and clear) is where the liquid with nicotine goes. The top part also contains a "coil" which is a piece of wire that heats up. Coils are replaced every week or so. The liquid is wicked onto the coil with cotton. When the liquid heats up, it turns into a vapor similar to the vapor made by fog machines in movies and theater.