As far as the Litecoin network itself, there are no "accounts" to set up and no e-mail addresses, user-names or passwords are required to hold or spend Litecoins. Each balance is simply associated with an address and its public-private key pair. The money "belongs" to anyone who has the private key and can sign transactions with it. Moreover, those keys do not have to be registered anywhere in advance, as they are only used when required for a transaction. Transacting parties do not need to know each other's identity in the same way that a store owner does not know a customer's name who pays with cash.
The creation of coins must be limited for the currency to have any value.
New coins are slowly mined into existence by following a mutually agreed-upon set of rules. A user mining Litecoins is running a program that searches tirelessly for a solution to a very difficult math problem whose difficulty is precisely known. The difficulty is automatically adjusted regularly so that the number of solutions found globally, by everyone, is constant: an average of 6 per hour. When a solution is found, the user may tell everyone of the existence of this newly found solution, along with other information, packaged together in what is called a "block".
Proof of Work
Litecoin uses Scrypt as a proof-of-work scheme. Scrypt uses the low-latency cache memory of modern processors to provide greater hash-speeds on CPUs in comparison to GPUs. We would like to extend our thanks to ArtForz for the implementation.
We don't install trojans, wallet stealers or viruses on your computer. We don't withhold the source code from you. We don't hold millions of coins in storage. We don't collect a tax. Check out the source code. You don't have to trust us.
The Litecoin blockchain differs from its Bitcoin counterpart in that it tries to have smaller blocks, and generate them four times as fast as the Bitcoin network allows. This means that merchants get faster confirmations for their online products.
If you would like to squeeze every last piece of performance out of your processor, you can download and compile ArtForz's branch of Jeff Garzik's command-line cpuminer which is optimized for the scrypt cryptographic algorithm.
Fresh from the Bitcoin codebase is encryption, which allows you to lock down only the private keys in your wallet, so that you can still see new transactions and your account balance, but are required to enter your encryption key in order to spend. This serves as not only a protection to dumb trojans, but also a sanity check before sending all your funds away.
Miners will generate 50 coins per block. In light of our faster blocks, to properly mimic Bitcoin's generation trajectory, the amount of coins generated gets halved every 840,000 blocks. For those of you doing the math, Litecoin is scheduled to produce roughly 4 times as many coins as Bitcoin, about 82 million litecoins.