Simply put inflation is "an increase in the price you pay for goods."

In other words, a decline in the purchasing power of your money".

Here is a calculator:
http://www.westegg.com/inflation/

It can be caused by an increase in demand over supply, for extreme examples take a look at Tickle Me Elmo in the '90s, or generators, food, and such supplies after Hurricane Katrina in the affected areas.

However, long term it comes about through increasing the money supply. Hate to toot my own horn, but I went into it in detail here: http://www.answerbag.com/a_view/7936636