The system works by people exchanging their sterling for paper Bristol pounds – in single, five, 10 and 20 denominations – or by opening an account at the Bristol Credit Union. The currency can then be spent in participating businesses, or between businesses, in return for goods or services.
So far (June 2015), some £1m has been issued in the community currency, of which about £700,000 is still in circulation. The currency can switch between sterling and Bristol pounds.
This 2013 Guardian article about Transition Towns describes how local currency can help local communities. Read the article here
And here are some more links specifically about the progress of the Bristol Pound -