How does circular polarization work? Essentially, linearly polarized light is converted to circularly polarized light by slowing one component of the field. Effectively, the light is given a twist. This is achieved by using a material that transmits light at different speeds depending on its polarity. This happens because of the way the atoms are arranged in the crystal. In the diagram above, you can see a linearly polarized light wave (simple blue wave entering at left) oriented at 45 degrees to the system. Projected onto the vertical and horizontal planes are the vertical and horizontal components of that wave (equal and in phase). When that wave passes through the material, the vertical component is slowed down so that it is out of phase with the horizontal component. When it is a quarter wavelength slower, the resulting wave is helical. To an observer receiving the circularly polarized light, the electric field of that light will appear to rotate rather than just bob up and down. Hence the term circular polarization.
Notice how the dark red horizontal component passes through without change but how the dark blue vertical component is held back. This diagram is a major simplification but it does illustrate the idea. See an animation of a circularly polarized wave.
Circular polarization and 3D: Modern cinematic 3D often relies on circular polarization to separate the stereo views. Special circularly polarized glasses are worn to allow only the correct view to enter each eye.