CD-RW's are plastic discs that are coated in a layer of phase-change compound instead of dye. In its christiline form this compound is translucent. When you record onto a CD- RW a laser heats the compound where it would otherwise darken they dye of a CD-R. The liquified spots are interpreted as zero's while the clear spots are interpreted as onrd. When a CR-RW is erased, another laser heats the compound again, but only to the point that the liquified compound recrystallizes and becomes clear again.
Adantages are that it can read discs made by different CD-R and CD-RW devices, the media on it can be re-written or erased over and over again.
Some disadvantages are that areas can get burnt out, and CD-RW drives are slower than CD-R drives by 2 times. They also have less usable space due to the multiple table of contents.