Here's what I've heard, might not be exactly right.
Creatine is converted to creatine phosphate and stored in your muscles. During strenous exercise your body signals the breakdown of stored creatine, causing it's phosphate molecule to break off and help form atp's to produce additional bursts of energy when your muscles would normally be waving a white flag.
After the loading phase, you should take it about an hour before you work out. It takes an about hour to get into yuor bloodstream. If it isn't used within about an hour and a half of reaching your blood to replace creatine stored in your muscles your body will just pass it as waste. So the idea is to get your muscles loaded up first, then have some in your blood so it can dive right into your muscles when u deplete your stores during a workout.
Studies have demonstrated that it's not just another BS supplement. Creatine really does help, and most serious athletes use it. I've heard about it increasing water retention too, but I don't know anything about that.