A starter is a fermented batch of flour and water, sometimes with additional leavening, that eventually becomes a culture of wild/natural yeast. A sourdough also encourages the development of Lactobacillus (bacteria), as well. It is used to leaven and flavor a bread recipe, but it also favorably affects crust (thickness and color), crumb (texture), and shelf life. Yeast also transforms sugars and starches in the hydrated flour to be more digestable for humans as well as transforms amino acids, liberated from the flour protein into aromatic alcoholic compounds and esters with fruity flavors. 

All yeast, whether packaged or wild, goes through a fermentation process. It begins when flour and water mixed together and yeast, whether added or cultivated, feeds and ferments. It stops when the bread is baked and the yeast die. An adequate food source, temperature and conditions must be right in order for fermentation to take place. Temperatures that are too hot will kill the yeast, so no carbon dioxide will be produced, but freezing temperatures can be tolerated sometimes.

To begin the fermentation process, the yeast feeds on the hydrated flour's starches and converts it to simple sugar (glucose) with an enzyme it contains. Both it and the bacteria found in a sourdough, feed on the sugar plus any added from fructose and/or glucose (fruit or honey), and multiply and grow. As by-products of the feedings, which you can see and smell in about 3 days for a sourdough and and hour or less for a sponge starter, the yeast (and Lactobacillus contributing some) will start to give-off carbon dioxide bubbles (CO2) and alcohol (ethanol) and the Lactobacillus, lactic and acetic acids. (Yeast does not produce appreciable amounts of either lactic or acetic acids). The CO2 will eventually leaven the bread recipe, with the alcohol and acids, contribute to a more complex flavor and texture to the recipe. A sponge does not have a characteristically acid taste that a sourdough bread has because of the absence of Lactobacillus in its starter, as well as the length of time fermented.

During the fermentation process, you can see and smell it while it is happening right before you; as the starter's ingredients ferment, the starter develops a characteristic sour odor and bubbles. As the starter ferments, it changes to a light yellow color, from white or another color depending upon the type of flour used. It smells increasingly sour, alcoholy and yeasty from the by-products from the yeast and bacteria's feedings and fermentation. The starter will also have a froth forming on top or bubbles forming round the edges of the container from the carbon dioxide.

Fermentation also causes what the French call it "long kneading; i.e. you do nothing and the gluten is partially developed in the starter which you see as strings when you stir it. The long elastic strands of wheat protein, called gluten, are formed in it when wheat flour is moistened and stirred. They become an elastic mesh, where the carbon dioxide are trapped. The warmth of a rising place or the oven will expand the air bubbles in the dough (and some in the starter) when heated, therefore raising the bread, as if it contained a million tiny air-filled balloons. 

When fully fermented, the starter can be put in the refrigerator and fed more flour and water once a week, or used in a recipe. However, if the starter doesn't bubble, produces a strong unpleasant odor, or becomes an off color such as pink, an undesirable yeast has taken hold, and the starter must be discarded. (More about starter problems with solutions). 

The longer and slower the yeast is allowed to ferment, the more intense flavor and interesting texture will occur in an Artisan bread recipe. Sometimes by placing the starter in cool temperatures, such as in a refrigerator rise, slow down the production of carbon dioxide gas by the yeast, which will produce a more sour bread - it's because the bacteria, responsible for sour flavors keeps on fermenting during this time.