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How Does Acupuncture Work?
According to the National Institute of Health, researchers are studying at least three possible explanations for how acupuncture works:

OPIOID RELEASE. During acupuncture, endorphins that are part of your body's natural pain-control system may be released into your central nervous system - your brain and spinal cord. This reduces pain much like taking a pain medication.

SPINAL CORD STIMULATION. Acupuncture may stimulate the nerves in your spinal cord to release pain-suppressing neurotransmitters. This has sometimes been called the "gate theory."

BLOOD FLOW CHANGES. Acupuncture needles may increase the amount of blood flow in the area around the needle. The increased blood flow may supply additional nutrients or remove toxic substances, or both, promoting healing.

Information borrowed from the Mayo Clinic: Acupuncture: Sharp Answers to Pointed Questions.

Does Acupuncture Hurt?
Acupuncture is performed with hair-thin needles, unlike hyper-dermic needles, which are hollow and greater in diameter. Acupuncture is virtually pain-free, with the exception of an occasional pricking sensation of the tip. Of course, pain is perceived differently from person to person, but frequently the patient is unaware that the needle has been inserted. The patient often falls asleep with the needles in the body because of the relaxed state that is achieved.