First you need to understand what stocks are and why companies sell them. When you own a shares (stocks) of some company, you actually own a part of that company. By dividing the shares that you own by shares outstanding you can calculate how much of the company you own. If the company has 100,000 shares outstanding and you own 1,000 shares, you own (1,000/100,000) 1% of that company. Depending on the number of shares that you own, you can actually have a saying in that company. The only type of companies that issues stocks are corporations, which means that they are owned by shareholders.
Usually there are two types of companies that are issuing stocks: A start-up company that is just starting their business and needs an extra capital so they can establish their business. Second type is usually an existing company that wants to expand, so they need extra money. Depending on a demand for a certain stock, it's price fluctuates. When demand is higher, stock price goes up, and the other way around. When a stock is bought low, and sold high, the profit made is called capital gain. When the stock is sold for the lower price that bought, it is called capital loss.
Companies are categorized by their market value (market capitalization). The basic categorizing of market capitalization is:
Micro Cap (under 250 million) - These are the smallest and the riskiest companies, but with the highest potential for growth. Winston Hotels In (WXH), Pacific Union Bank (PUBB), VARSITY GROUP INC (VSTY), etc.
Small Cap (250 million to 1 billion) - These stocks are my favorite because they still have plenty of growth potential with substantially smaller risk compared to micro cap ones. Orbital Sciences Corp (ORB), Armor Holdings Inc. (AH), etc.
Mid Cap (1 billion to 5 billion) - These companies have much less risk, but equally much less growth potential. Good examples are: Marvel Enterprises (MVL), Doral Financial Corp. (DRL), Advanced Micro Devices (AMD), etc.
Large Cap (5 billion to 25 billion) - Usually called as "blue chip" stocks, usually have good appreciation over long period of time with very small risk. If you are very intolerant to risk, go with "blue chips". Some good examples are: The Progressive Corp (PGR), Costco Wholesale Corp. (COST), Sara Lee Corp (SLE), etc.
Ultra Cap (over 25 billion) - These are the biggest of the big. Some of the companies that fall into this category are: Microsoft (MSFT), General Electrics (GE), Walmart Stores (WMT), etc.
Usually the higher market capitalization company has, lower the risk will be.