Could anybody provide some details on "how entity framework actually works" or point me to a web site? I dont find any somehow.
I would highly recommend Julie Lerman's book Programming Entity Framework (she's working on the 2nd edition which will cover EF v4) and in the meantime, check out her Learn Entity Framework web site for hints, tips, tutorial and much more.
She's also doing a series of introductory screencasts at Pluralsight On-Demand training, which is not free, but online training well worth the price of a subscription.
Also check out the ADO.NET team blog for interesting tidbits about EF from time to time.