An fsm is a virtual device that manipulates a candidate string, one character at a time, and determines whether that string is in the language implemented by the machine. The simplest state machine reads the string exactly once, and has no memory, only registers. It is therefore a finite state machine.
An fsm is defined by a set of states and a transition function that maps state/input pairs into states. In this state, reading this character, move to that state and advance to the next character.
Some states are designated "final" states, and strings that leave the fsm in one of these final states are, by definition, in the language.
One state is designated the start state. When the start state is also a final state, E is necessarily in the language.
Example: The following 4-state machine defines binary strings with an even number of 1's and 0's. States are abcd, and input characters are 0 1. State a is both the start state and the final state
0 1 a → b c b → a d c → d a d → c b
this seems to add a great deal of power, but in fact it does not. Any nfsm can be emulated by an fsm with more states. Start with an nfsm containing n states x1 x2 x3 etc, and construct a deterministic fsm with 2n states as follows. Each state in the new fsm corresponds to a unique combination of states in the original nfsm. The initial state y0 corresponds to the union of the initial state x0 and all other xj states that are accessible from x0 via E transitions. The state yi in the fsm is a final state if any of the corresponding xj states, represented by yi, is a final state in the original nfsm. To determine the transition function f(yi, C), apply C to each corresponding xj state, and bring in any new states that are accessible via E transitions. The combination of all these states determines a particular yk. Thus state yi, reading character C, moves to state yk.
By induction on string length, any string that leaves the constructed fsm in state yi also leaves the original fsm in any of the corresponding states xj. One machine says yes to the input word iff the other one does. Therefore nondeterministic fsms are no more powerful than their deterministic counterparts.