The guide below explains how the process currently works in 2017.
What is dropshipping?
To answer your questions in the details: when a customer places an order with you, you order that item from your supplier (and tell your supplier to ship the product to your customer's address). Of course, your customer pays you, and you pay your supplier. You can do this manually at first but it is not difficult to automate. Nowadays there are a lot of platforms, web-services etc. that will help you to fully automate the fulfilment, payment, sales and logistical process.
Everyone makes the same mistake starting out, though. I made it myself. That is, people new to affiliate marketing will try and promote products without their own blog/website.
Amazon, eBay, you name it. You might make some sales. Great for you. Use eBay/Amazon to sell if you wish but be are about their exorbitant fees! The only benefit you have is that you access to their customer base and SEO ranking.
Generally those two sites are only good to see what's trending/selling. Not only will you get poor margins, but more importantly...you missed out on 80% of the money you could have made.The mean reason is because you are only making money on impulsive customers, who buy on the first exposure to the product. Plus, you don't get the opportunity to connect them with more great products in the future.
On average, it takes a customer 5 to 6 exposures to a product before they buy!
You have to get them to your home base (website/blog). This is the most important part. The blog is your 'home base' where you will build your 'tribe', so to speak. People you can continuously promote to within the valuable content you provide to them. You get them to your website in the first place by writing valuable content about the topic elsewhere and directing readers back to your blog for more.
Alternatively, you can make videos on YouTube, Vimeo and other media platforms. This is called retention, and it is extremely important.So, you get them to your blog for more unique content about the topic and then you re-target them.
If they sign up for your e-mail list, great. You will send them more content that way to expose them to the product more. Keep them informed and keep them happy.
In addition to e-mail campaigns, you can also paste facebook and Google re-targeting 'pixels' into your website. These are what cause those ads that seem to follow you around the internet after you visit a website. With these pixels, you can remind the customer about the product and the great reasons to buy, using ads that link to more awesome content. If they aren't interested, they won't click. Costing you nothing. If they are interested, they will click (costing you a couple bucks), but they are likely to buy.
To find products, at first you will want to use a directory of drop-shipping wholesalers. Try a few products. See what you can sell successfully. When you have found a niche of products that are working for you, your margins will not likely be ideal. Some people will even let them be negative (ie. Cost of product + Cost of advertising > Price you charge customer). That's okay. The directory served its purpose. You now know what to sell and you can scale. Plus, you can still use it to find products for the next niche site while the first sits on autopilot.
Now, to find better margins, you start contacting manufacturers and wholesalers directly. You negotiate your own contracts. This is where the great separate themselves from the good. For even better margins, you'll have to warehouse the product yourself. Even manufacture them. Keep trying, testing, iterating... Sorry to say, you won't succeed immediately. Well, you might. It's not super hard. I've watched a lot of people try this. 98% quit immediately. Not for any good reason; they just gave up. This strategy rewards persistence. Time and money spent with no immediate reward is not wasted; it's just an upfront investment. That is where you learn. Luckily it's a pretty easy biz to learn.