It's just a site that negotiates deals with companies & places, then offers them to the general public. If enough people purchase the deal, everyone gets it (which seems to happen 99.99% of the time).
No real downside except you are paying in advance for something, and you need to make sure you use the deal before it expires (although in most cases - maybe all - you are still offered the amount you paid for the Groupon at the selling location. So if you bought a $20 coupon for $10, even if you miss the expiration date for the $20 value, you still get $10 in value for a much longer time - 5 years, I think).
There is also Living Social, Landmark Deals and I'm sure numerous other sites - some structured towards kids as well that I've seen.