The compass baseplate is the flat surface that can be used as a ruler on a map. The dial is circular, and marked with each degree of a circle and the orienting arrow. The needle is magnetized and always points north. The "direction-of-travel" arrow will eventually point where you want to go.
Earth's Magnetic Field
The earth's magnetic field is created by electrical charges and movement of the liquid metal core. The field radiates outward from the poles, surrounding the earth. The axis of the magnetic field is tilted in relation to the axis of rotation, which is why magnetic and true north are different.
A compass needle points parallel to the lines of force of the magnetic field. The angle between magnetic and true north for a given area is called the magnetic declination.
How To Use
Hold the baseplate at your chest with the "direction-of-travel" arrow pointing away from you (pictured above). Turn the dial to the direction you want to go, and then turn your body (leaving the compass against your chest) until the needle is in the orienting arrow. Add the declination angle to account for true north. You will be pointed in the direction you want to travel.
You need some practice and a map or computer program of your area to find the magnetic declination. Some more expensive compasses have a declination adjustment. Carry a map with you when hiking.