Sure. MartinCron may be able to answer this question better than I can, but I'll give you my outsider's perspective.

I think it starts with the assumption that people enjoy sites that make them laugh. We all need a break from our hectic days for a few smiles. That's why sites like The Onion, FML, Stuff White People Like, etc have thrived. They have hilarious content that's updated often and draws people back again & again.

Advertisers love being any place there are masses of people - particularly a place that can matches their target demographics and fits their brand.

Right there, you could have a fair business. Funny content + advertisers.

But to make this business scalable, you need a lot of content. Writing content is difficult and expensive. You would have to hire a lot of comedy writers (a la College Humor) to constantly pump out great stuff. It's not impossible, obviously, but for every College Humor there are dozens of failed sites who just weren't funny enough.

There's a better way though. If you can encourage your audience to generate the content, you'll have a cost-effective (read: low-margin) way of creating great content, plus you'll get the audience involved and make them feel like part of the community. It's very satisfying to see your cat with your funny caption on icanhascheezburger.com. That's the kind of thing that can make you a long-term fan and repeat contributor.

To take this one step further, have the audience rate which pieces of user-generated content is good enough to be featured on the site. This is similar to the Threadless model. You don't need to actively pick the best pieces of content, you just let your audience do it for you. And your audience is probably the best judge of what they think is funny or not. It's crowd-sourcing at its best.

Now you have: (user generated content + user ratings = funny content) + advertisers

What's especially insightful is that Cheezburger Network took this another step further. They built a platform that allowed them to replicate this formula across various "humor niches," if you will. As MartinCron said, it's more than just Internet memes, it's any crowd-source-able humor.

The platform itself is what I alluded to in my previous comment. It allows them to cost-effectively launch new sites after they've analyzed new potential humor niches. They don't even have to be comedic geniuses (though with a failure rate of 20%, perhaps they are), they just have to launch lots of sites, then kill the ones that fail. This Darwinian approach will leave them with only high-quality content.

MartinCron didn't mention this in his description of the technology, but I imagine they also need an advertising system of some sort. Advertisers on icanhascheezburger.com may not want to advertise on ihasahotdog.com, for instance. Their ad system would have to be able to manage their ad inventory.

So here's what we have so far: (user generated content + user ratings = funny content) + (advertisers + managed ads)

And this is being replicated over & over again by their platform. I focus a lot on their platform because I believe that is what makes their business scalable. You could try building individual instances of such sites over & over again yourself, but it would take quite a bit of time. Automation is key to a scalable business.

On top of all this, it sounds like they're now adding a basic social network to further increase a user's involvement on the site. That will surely encourage current power users to become even more loyal. And the ability to share content on social media services will aid them with marketing reach. All smart moves towards scaling their business even further.

I hope that answers your question, medianama. A little long-winded perhaps, but I think I've covered most of the major points, as I see it. I'm sure others can elaborate even further.