A compass basically is a magnetic needle that can rotate freely. The earth has a magnetic field. The magnetic north and south pole roughly correspond to the earth geographic North and South Pole. Since equal magnet poles repel and opposite magnet poles attract each other, our magnetic needle will align itself with the earth magnetic field: the south pole of the needle will point to the earth's north pole, the north pole of the needle will point to the earth's south pole. The earth magnetic north pole is located near the northern islands of Canada, at approximately 78.9°N latitude and 103.8°W, about 1200 km from the geographic North Pole. A compass points to the magnetic north pole and not to the geographic North Pole. The difference between the True Direction and the compass heading is called Magnetic Variation. The amount of variation depends on the location on earth. It even changes in time, since the magnetic north pole moves a few km per year. Variation is expressed as e.g. 2°25' West. This means at this position the compass needle points 2°25' to the west with respect to true direction of the True North. Variations can be as large as 20°.

The Earth does not contain a giant bar magnet, but it behaves as if it does. The Earth has a magnetic north pole and a magnetic south pole. Compasses work because bar magnets can line up in the Earth's magnetic field and point north. Make sure you understand these things: the north pole of a bar magnet is actually called the 'north-seeking pole', and it points to the Earth's magnetic north pole; the south pole of a bar magnet is actually called the 'south-seeking pole', and it points to the Earth's magnetic south pole. Small compasses called plotting compasses can be used to show the magnetic field around a bar magnet, instead of using iron filings. The needle in each compass turns and lines up along the field lines.