Essentially you create a Sim (for all intents and purposes, a person). They live in a house (either prebuilt or you build it), and you can either let them go about their business or tell them to do specific things.
They have needs that must be satisfied, wants that you'd do well to satisfy, fears to avoid... Just like normal people. They interact with other Sims, can get married, have kids, pretty much everything you can think of.
Your "goal" as it were is to make sure they're happy.