A chemical compound in the brain called adenosine regulates brain cell activity. When the brain works too hard and begins burning up its energy reserves, the concentration of adenosine in the brain rises to stop its activity. The adenosine binds with certain receptors of the brain, which triggers the slowing down of nerve cell activity and causes drowsiness.
When caffeine enters the body, it binds with these same receptors and prevents the brain from slowing down by interfering with adenosine's function. Nerve cells are tricked into thinking adenosine isn't present and cell activity continues to speed up.
Another critical job for adenosine is causing blood vessels to dilate so more oxygen can enter during sleep. But again, caffeine interferes, causing blood vessels to constrict. The result is what is known as a caffeine headache.
With all the increased neuron activity in the brain, the pituitary gland goes into action, thinking there must be some emergency. It releases adrenaline, which increases alertness, and causes a number of physical effects on the body. Finally, caffeine increases dopamine levels in the brain's pleasure center, causing a sort of high similar to other addictive drugs like cocaine or heroin. In other words, caffeine makes you feel good.