May someone explain this html/css code to me?

May someone explain this html/css code to me?

How come when this code is run, it creates a drop-down list like it does?
HTML
<ul id="menu">
<li><a href="">Home</a></li>
<li><a href="">About Us</a>
<ul>
<li><a href="">The Team</a></li>
<li><a href="">History</a></li>
<li><a href="">Vision</a></li>
</ul>
</li>
<li><a href="">Products</a>
<ul>
<li><a href="">Cozy Couch</a></li>
<li><a href="">Great Table</a></li>
<li><a href="">Small Chair</a></li>
<li><a href="">Shiny Shelf</a></li>
<li><a href="">Invisible Nothing</a></li>
</ul>
</li>
<li><a href="">Contact</a>
<ul>
<li><a href="">Online</a></li>
<li><a href="">Right Here</a></li>
<li><a href="">Somewhere Else</a></li>
</ul>
</li>
</ul>
CSS
ul {
font-family: Arial, Verdana;
font-size: 14px;
margin: 0;
padding: 0;
list-style: none;
}
ul li {
display: block;
position: relative;
float: left;
}
li ul {
display: none;
}
ul li a {
display: block;
text-decoration: none;
color: #ffffff;
border-top: 1px solid #ffffff;
padding: 5px 15px 5px 15px;
background: #2C5463;
margin-left: 1px;
white-space: nowrap;
}
ul li a:hover {
background: #617F8A;
}
li:hover ul {
display: block;
position: absolute;
}
li:hover li {
float: none;
font-size: 11px;
}
li:hover a {
background: #617F8A;
}
li:hover li a:hover {
background: #95A9B1;
}
I know all the CSS properties and the HTML tags used in the above code,
but still, for somee reason, I've been trying for the past hour and still
not been able to completely comprehend it. Source: How to make a pure css
based dropdown menu?