Disclaimer: I am no expert on this topic. I have done my best to outline it to the best of my understanding.
You may have read on the news that The Pirate Bay is facing legal action from a variety of media firms. This BBC Article describes the defense of the two fellows who run it. Basically, they claim innocence because they don't actually host any files only the files that link to files. This is the defense their lawyer will use when they go to court.
This is all well and good in the sensible world, but on the internet reality, everyone knows they are one of a small set of people who provide one of the means to facilitate illegal downloading. They do break the law, and they know it.
However, these fellows are only one link in a chain of illegal television dissemination. Sensible world people point to the legal options for music and television downloading as evidence that the media companies aren't simply out of date. However, the chain of which The Pirate Bay is a small lower part outstrips legal downloading companies in efficiency, breadth of content, variety of quality and sheer usability.
At the top of this chain is what is what I'm going to tentatively characterize as The Scene. The Scene is probably the most (self-proclaimed) shadowy internet organization around. One only needs to read the apparently totally benign Wikipedia Article to get a sense of how deliberately shadowy this non-organization is. The article says almost nothing: there is more in the talk/discussion pages-- somebody's rules, somebody's philosophy, and above all the controversial nature of what The Scene actually is (it is not all dedicated to illegality, but even if it isn't). Its unifying characteristics seems to be that it is stoically alternative, libertarian and firmly based on quid-pro-quo.
Nevertheless, whatever variations on different groups within The Scene may define it as, The Scene consists partially of the type of people, formed into Release (or "Warez') Groups, who make up the top of the illegal downloading chain. These are the clever people (always credited at the end of the file name, e.g. "The.Mentalist.S01E01.PREAiR.DVDSCR.XviD-MEDiEVAL" where MEDiEVAL is the group) who turn HD television, DVDs, games and other software into useable computer files. If there are any true Pirates, these are them. They are also part of the reason this system is so efficient-- speed is a mark of skill.
The next link on the chain is Topsites. Topsites are the uberfast FTP-based stock exchanges of the pirated media world. They allow the uploading and quick movement of files between members of Release Groups. They are secret and secure from prying eyes, open only to those in the know both technically and socially.
There is a line here between public and private. Until now, these releases have been elite, restricted to those involved personally in the piracy business which is highly reciprocal-- that is, downloads are balanced with uploads, everyone contributes. As we enter the public sector of piracy, we enter a consumer culture where the downloader gives little back. I have been told that there is a very strong sense of resentment among the more elite towards the masses who leech off the skills and risks taken by people they may not even be aware exist.
Now we have reached BitTorrent tracker sites. Certain individuals-- people who have access to topsites but are not members of The Scene (who tend to be, marginally ironically, highly protective of 'their' files)-- make .torrent files available for public or semi-public download. This is called seeding; all those with partially downloaded versions of a file are peers. The journey to the consumer is very quick: From the end of a television show to seeding on public torrents, a high demand show may arrive in a mere 20 minutes.
There are two types of torrent tracker sites. More elite and generally faster are private torrent sites, generally restricting their users to those chosen by invitation or only opening public sign-ups at certain times. Most popular and far more famous are public torrent sites, which allow anyone with a .torrent client such as BitTorrent or utorrent. Some of these public sites closely control what is shared via their site, and initially seed all content themselves-- for example EZTV, which contains only television torrents, releasing one for each show (whichever is first released by a Release Group). Others are far more lax, providing only the medium for exchange between average joe consumers. The Pirate Bay is one of these.
Other means of exchange exist. For example, some organizations and groups (such as colleges) have their own private Direct Connection groups, which allow direct and rapid exchange of files between consumers on the same network. Again, these small groups value speed.
At the bottom of the chain is you and me: the average consumer, leeching off the energy or skills of the more dedicated pirates above us in the chain. We may be totally unaware of the work that goes into the file we download using our .torrent client. The only remnants of those shadowy upper levels on which we rely are the Release Group's moniker at the end of the file name and the in-built upload/download ratio requirement built into the BitTorrent protocol: We must share in order to receive.
It is bizarre, but perhaps understandable, that it is the consumer and the public torrent tracker that receive the most media attention for the piratical activities. Owners of torrent sites like The Pirate Bay are probably the most public figures in the process: they own vast numbers of servers which process vast numbers of transactions every second, allowing vast numbers of people to connect to each other and retrieve free media. They are easy to find, high profile and making money. They make a splashy, easy to understand story
Yet they are not, generally, the people waving boarding ships. It is the elite who are getting their hands on DVDs before the release date, and encoding television shows moments after they finish airing. Those people are no doubt of great interest to police, but they are the ones who have the skill (and ability, by the nature of their activities) to hide. Neither do they make a good news story, as they have shadowy, complicated, text-based presences.
They are the people who make illegal downloading considerably more attractive than the legal kind. Despite their elite status they are essentially consumers themselves, and so they produce files in formats and qualities they want to use, attach no pesky strings, annoying commercials and DVD menu screens-- and because they are individuals they produce a highly diverse selection of media. Not only is it a completely free product, it is better product. Only when legal sites match the useability of illegal sites will legal downloading become a viable alternative for those who are even slightly technically apt.
I have no doubt that, in sensible world terms, the entire piracy chain is acting illegally as a whole, each contributing a little to a grand scale theft and distribution. I also have no doubt that this is not crime in sensible world terms. They are not doing it for the money or the power. They do it for love of the product or the work, for balance against corporatism, for freedom of information, to screw a rigid system, because it tests their skills, for the sense of importance, for the benefits of the reciprocal culture that defines file sharing and because it's fun.
And why are people like the guys who own The Pirate Bay so brazen? Because the chain of piracy is much bigger than just them. Their involvement seems flashy but is actually negligible. Perhaps the individuals will change their tune behind bars, but the piracy will go on without them nevertheless; perhaps even their own site will go on without them, run by a new set of bright young things with the right passwords. Unless continents shift, the house cannot win.
Likely someday they will. Either some genius will come up with a way to entirely disrupt the chain and/or media companies will figure out how to match it while charging customers-- or, the companies will go out of business and the whole media system will collapse. Until then, the arrest of middlemen will ultimately be a fruitless gesture and one that does not even match the sheer determination and inventiveness that goes on in the admittedly illegal activities of the internet's pirates.