To make bitcoin payments or receive bitcoins the payer and payee both need to have a bitcoin wallet (at a connected computer) at their disposal and the payer the necessary bitcoins to make the transfer. From the users perspective paying with bitcoin in essence is not that much different from other payment mechanisms: value is transferred between payer and payee. NB Technically this is not entirely true: the value is exchanged with bitcoin directly, where other payment mechanisms almost always do not exchange the value but a kind of “drawing right” on the value at a third party. But from the perspective of the two bonded partners for a given transaction it is resulting in the same exchange of value.
Practically a bitcoin transaction asks for different provisions and user actions as with traditional payment mechanisms. With traditional payment mechanisms third parties provide the provisions and infrastructure needed by payer and payee. With bitcoin the user will have to assemble these provisions herself and only in time this will evolve into an experience that can be used by the early minority – let alone the rest…
Gizmodo has produced a very nice info-graphic to explain in detail and systematically How a Bitcoin Transaction Actually Works. 
NB if you want to read the small print you can find the original here
Kashmir Hill, of Forbes has been living for a week purchasing services and goods limiting herself to bitcoin and has been reporting on her experiences at a daily basis: Living On Bitcoin For A Week: Can’t Pay The Rent. You could ask yourself how it would be to life a week with only cash, or only a credit card, a debit card or a electronic wallet for that matter. But the story shows, at least to me, bitcoin is not ready for prime time yet; usability and penetration being the major hurdles for practical use.
The particularities of how a bitcoin transaction works and the applications available today do not make it an alternative for daily mainstream use. Apart from the fact that not to many potential payees are available as of yet. (NB a substantial penetration and critical mass is a prerequisite for a main stream payment mechanism) This will prove a hurdle for mass acceptance of bitcoins for day-to-day usage.
We need multiple payment types to be able to efficiently make transactions. Every payment mechanism has its own strong points and sweet spots for use, never covering al situations for all and for all preferences. Bitcoin will not replace all the others in all circumstances, as no other payment mechanism will be able to (NB do not underestimate the amount of time and effort needed to have people change their payment habits!). But bitcoin can earn its place, step by step. Seamless usability, and relevant amounts of penetration (NB maybe clustered in certain area’s of used cases) will be essential if it is to make a dent in the the transaction volumes that are “owned” by credit and debit cards at present. Bitcoin is clearly not there yet…
(UPDATE 12 March 2014)
If you want an audible introduction into bitcoin and its significance, or if you want to be triggered to broaden your perspective on the significance and potential of crypto currencies I can recommend listening to:
The Talk Show #74 „Heart of a Gambler” (7 March 2014): John Gruber talks to Glenn Fleishman on Bitcoin.
The parts relevant can be found:
26:25 – 58:35: Bitcoin basics neatly explained
1:01:35 – 1:55:10: „money is not gravity” or bitcoins’ potential
For more on Bitcoin at Red Planet Dust:
