It's a bit complicated but basically the elected witnesses publish a price feed that says what the price of Steem is relative to Steem Dollars. So if Steem goes up, the witnesses increase the feed price and that keeps Steem Dollars at around $1 USD. You can convert from Steem to Steem Dollars and back within the blockchain at any time via this price feed rate.
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Thank you, @buggedout. This is a little bit complicated. However, after I read @foovler's response, I am starting to understand it better.
Thank you, both.