| MadSci Network: Astronomy |
What actually happens is that the satellite is falling towards the Earth, but it is moving forwards fast enough so that the Earth stays at the same height. You can understand more of this by looking at the centripetal/fugal force (depending on which books you read), F=(mv^2)/r, and equating that with the gravitational force, F=GMm/r^2. This means that the "force" outwards, the centrifugal force, is equal to the pull of gravity. It's like if you tie a stone to a string and whirl it round your head (don't try this at home!). The centrifugal force is the one which makes the string tight, the "Gravitational" force is you pulling the string.
Try the links in the MadSci Library for more information on Astronomy.