Please see some of my past posts.
In brief, it consists of a lease and an option to buy a property. Typically, there's an up-front option fee that is applied to the purchase price if you purchase. The option fee is fully negotiable, but often is in the range of 1%-3% of the agreed-upon purchase price.
Up front, usually, a purchase price is agreed upon. Then you rent, often with a portion (10%-25% is often the amount) being credited to the purchase price if you decide to buy.
The option can be for any period of time. It should be for 3 years or more, to protect you. It says that you have the right (but not the obligation) to buy the property during the option period. It also generally says that you must be in compliance with all the terms of the lease.
If, during the time period of the option, you decide to buy, you notify the seller and you go out and get conventional financing to purchase the property.
You use the option period to clean up your credit and qualify to purchase the property.
Hope that helps.