As I understand it Google maintains a list of all the domains it can find. It then sends its spiders out to grab their content one by one. There are a whole lot of domains so it takes the spiders a month or so to run through them all. But when they hit your domain they look at every page they can find and update their records where neccessary. So every month or so you will see them spider you.
Then, my best guess is every couple of months they reindex the whole directory with the new info that they have. That's when you'll go up or down in position.
N.B. I don't work for Google so this is just my best guess
