To elaborate on what david said,
there are what are called Root DNS servers, these are the ones that hold all the records, everything else propagates from these.
those servers know the SOA (start of authority) for your domain name and update from there...
for example on my website I host it from home.
I have a no-ip setup...
as far as everyone else is concerned the root DNS server is the SOA for my site, if your DNS server doesn't know it'll ask another until it get to one of the root servers,
the root servers think that 1&1's server is my SOA.
1&1's server checks with no-ip to find out what my IP address is.
no-ip checks with my DNS client to find out what my server is.
I have a DNS server set up on my own site, so I can make google point to 127.0.0.1 if I wanted to, then everything that checks with my DNS server will receive that address as googles IP address.
there are only three machines, (all in my house) that check with my DNS server.
if I could convince the rest of the world that I was the authority root server for DNS then I could set up any site pointing to any address I wanted.
but I can't
cause there are already big players in there with big machines already serving that information and getting paid big money to do that.
there are 13 root servers in the world.
http://en.wikipedia.org/wiki/Root_nameserver