Much in the same manner a person in the private sector would hire a contractor to work on their home companies will hire a contractor to recruit for them. Sometimes they have a baseline pay and earn a bonus for every person that they recruit into the company. Other times they simply earn money for how many they recruit and if the numbers are low they don't get paid. It's not an easy task but if you have good organizational and persuasive skills it can be lucrative.
The primary factors that determine if you keep your job are your work performance and the company's profitability. The nature of the economy has always made it a hostile field for recruiters. Large companies are downsizing to cut costs and merely survive the economic slump while others are flat out going out of business. This can make working as a recruiter somewhat difficult as there will be no one that needs you.
When this happens there are a lack of job openings obviously, but the skilled recruiters can still be in high demand. Companies are always looking for the best talent at the lowest price and this is emphasized even more when they downsize. Good recruiters are able to convince prospective workers that the employment opportunities available are better than at other companies and are worth it even with a reduce salary.
In many aspects it's similar to being a car salesman. You have to be very smooth, skillful, and able to tell people exactly what they want to hear whether they know they want to hear it or not. However there are also some drawbacks. You do have a contract to follow and breaching this contract usually ends up in you being fired.
Contracts differ from company to company but most of the time they are agreements that you will operate within company standards, work by the rules assigned to you, and not overstep your bounds. Of course it applies both ways so if the company tries to cheat you you can come back at them legally. But breaches of contract happen very infrequently and most people are very cautious about ruining their business relationships.
Starting out as a recruiter can be a difficult task. As mentioned it takes skills and patience. However if you do well you'll get notice and your name will make its way into the world. Some companies may accept your resume more eagerly if you're highly experienced and some may seek you out to work for them specifically.
Even though new job openings are scarce at the moment there are plenty of employment opportunities as far as current jobs are concerned. Companies are constantly seeking out the best talent and replacing the existing talent with better talent when they find it. Being a recruiter is a hard job and it's very important that you meet your contract requirements. Otherwise you'll be the one your company is thinking of replacing.
