How does acupuncture work?

1) Does acupuncture work?
The only studies I've ever read that suggest acupuncture does, in fact, work only suggest that it reduces pain. I have yet to see a study suggesting that it actually causes physical changes amongst individual organs. (I've also seen some studies suggesting that acupuncture does not produce a significant change in pain relief.) But for argument sake, let's assume acupuncture does reduce pain. The best answer I could give is that it's the result of the placebo effect.
2) How is acupuncture explained by the placebo effect?
The placebo effect is the idea that receiving a seemingly ineffective treatment can produce a medical change. For instance, many experiments involve giving patients a placebo pill (a pill with no actual medication) and those patients still exhibit improvements. With acupuncture, I've heard about experiments where treatments resembling acupuncture were given to patients and had equal efficacy. For example, acupuncture relies on inserting the needles into particular points, but inserting needles into "incorrect" position or not inserting the needles also produced some pain relief.
3) How does eastern medicine explain acupuncture?
Some of eastern medicine deals with the concept of qi, an invisible energy force that flows through all living things. The idea is that some health problems may be the result of inbalances or other issues related to the qi. However, no physical entity that has been observed matches the qualities of qi. In other words, there really isn't any proof that something like qi even exists in the first place. So, the idea is not necessarily wrong, but it isn't supported by scientific evidence.

In short, Acupuncture can decrease pain, but it's most likely due to the placebo effect. The idea behind the technique involves the concept of qi, but scientifically speaking, qi has not been proven to exist and/or have an effect on health.