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how does earth act as a giant magnet?

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Earth's magnetic field is mostly caused by electric currents in the liquid outer core, which is composed of conductive, molten iron. Loops of currents in the constantly moving, liquid iron create magneticfields. From afar, the Earth looks like a big magnetwith a north and south pole like any other magnet.
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Earth's invisible magnetic field extends far out into space to form a region we call the magnetosphere. The force of the solar wind pushes on the magnetosphere, squeezing in the sunward side and stretching the night side into a long tail (called the magetotail) that extends hundreds of thousands of miles into space. As the solar wind flows past the magnetosphere, it acts like a cosmic generator, producing millions of amps of electric current. Some of this electric current flows into Earth's upper atmosphere which can light up like a neon tube to create the mysterious aurora (Northern and Southern Lights).

 

A diagram of the Earth's magnetic field, which near the Earth resembles that of a bar magnet. Courtesy NASA.  

 

   

 

       
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