How does the tennis ranking system work?

I don't follow tennis much but my mom does. So on ESPN tonight, it said that Djokovic would be the new #1 and Nadal would go down. I asked her about if Nadal beats Djokovic, shouldn't he be ranked higher? She couldn't explain it because she doesn't know how the system works. She also explained how Serena Williams just barely lost her #1 ranking despite being injured for a long time. I'm hoping someone can point me in the right direction, so I have some general idea. It just doesn't make sense to me that Serena Williams isn't playing for so long, yet retains a high ranking.