When you turn on the A/C in your car, you are burning extra gasoline to make yourself feel cooler. The principles of evaporation and condensation are utilized in your car's A/C system by a series of components that are connected by tubing and hoses. There are six basic components: the compressor, condenser, receiver-drier, thermostatic expansion valve, the evaporator and the life-blood of the A/C system, the refrigerant. Here's how an air conditioning system and its components work. Step One: The compressor is the power unit of the A/C system. It is powered by a drive belt connected to the engine's crankshaft. When the A/C system is turned on, the compressor pumps out refrigerant vapor under high pressure and high heat to the condenser. Step Two: The condenser is a device used to change the high-pressure refrigerant vapor to a liquid. It is mounted ahead of the engine's radiator, and it looks very similar to a radiator with its parallel tubing and tiny cooling fins. If you look through the grille of a car and see what you think is a radiator, it is most likely the condenser. As the car moves, air flowing through the condenser removes heat from the refrigerant, changing it to a liquid state. Step Three: Refrigerant moves to the receiver-drier. This is the storage tank for the liquid refrigerant. It also removes moisture from the refrigerant. Moisture in the system can freeze and then act similarly to cholesterol in the human blood stream, causing blockage. Step Four: As the compressor continues to pressurize the system, liquid refrigerant under high pressure is circulated from the receiver-drier to the thermostatic expansion valve. The valve removes pressure from the liquid refrigerant so that it can expand and become refrigerant vapor in the evaporator. Step Five: The evaporator is very similar to the condenser. It consists of tubes and fins and is usually mounted inside the passenger compartment. As the cold low-pressure refrigerant is released into the evaporator, it vaporizes and absorbs heat from the air in the passenger compartment. As the heat is absorbed, cool air will be available for the occupants of the vehicle. A blower fan inside the passenger compartment helps to distribute the cooler air. Step Six: The heat-laden, low-pressure refrigerant vapor is then drawn into the compressor to start another refrigeration cycle. As you can see, the process is pretty simple. Just about every vehicle's A/C system works this way, though certain vehicles might vary by the exact type of components they have. http://www.edmunds.com/ownership/techcenter/articles/46869/article.html

The AC systems works by using a compressor to pressurize a gas. The other answer does a great job of explaining the exact process that make cold air. As you use the AC the compressor does use extra energy and will cause a small decrease in fuel economy. By turning off the AC you can get better gas mileage. BUT! if you open the windows of the vehicle in place of the AC system you will increase the drag of the vehicle going down the road and decrease the fuel mileage. Depending on the vehicle, load and speed this can more than offset the increase by not using the AC. I personally think it is a wash. Any increase you may get will probably be so small that you wont be able to measure it. If you ask because you are trying to save money there are many things you can do that will make a much bigger difference. Make sure the tires are properly inflated. Accelerate very slowly from lights. Slow down on the expressway. Make sure your vehicle is well maintained (oil change, tune up, ect) Carpool with a friend. (not driving one day every two weeks is a 10% savings) These things can save way more fuel than running in a hot car with the windows rolled up. Just my thoughts