Underground fences consist of a thin wire run a couple of inches under the ground in a complete loop. This is connected to an electrical outlet with a control box. The collar fits against the dog's throat. The dog needs to be trained to stay within the flags at first. When the dog gets close to the wire, a buzz warns the dog not to go further. If the dog continues to go toward the wire, a mild shock is felt. Most dogs learn where the limits are before they feel a shock (like static when you touch a metal object). The drawbacks are:
1. Other dogs can cross into your area
2. You have to check the wire and batteries in the collar to make sure they are always working
3. Some dogs will cross the wire anyway, sometimes not crossing back. For instance, in the heat of chasing a squirrel they cross the wire and when the squirrel is gone and the dog is calm, the dog won't ignore the buzzes or shock to get back in your yard.

Usually, a dog can be let out without the collar after training has really, really been ingrained.

I still prefer a real fence. Chain link or solid wood. Keeps the neighborhood dogs (and kids) out and my dogs in. It's better for me too, because I often foster dogs for short times and I don't have time to train them.