You hear a statement that you think is bogus (or you hear the denial of something that you think is true). You open a challenge in which you offer to pay a truth bounty of $x if someone can prove that the bogus statement is true (or prove false the statement that you think is true). Other people can join your challenge, adding to the bounty. If the total bounty exceed a significant threshold the challenge goes live.
Once a challenge is live, anyone can earn the bounty if their evidence for or against the claim meets the standards of a neutral, professional, scientifically trained group of adjudicators (provided by TruthMarket). If within a given time-frame no one wins the bounty the bounties are returned to the contributors minus 20% which goes to the initial sponsor of the challenge. The initial sponsor can now also trumpet that despite significant cash no one was able to prove the bogus claim (or refute the true claim).
Yes, it's real. More detail here, and a link to the (very real) business itself. They write further, "TruthMarket has some serious people on its management team and advisory board. There are already challenges about global warming, cell phones, defensive gun use and other issues." This might even be cooler than more traditional prediction markets, like InTrade. What's good about prediction markets is you get a better prediction because there's an added incentive to accuracy, or in negative terms, because it hurts more to be wrong. It's good when the penalty for being irrational is more immediate and transparent.