Freud was both a medical doctor and a philosopher. As a doctor, he was interested in charting how the human mind affected the body, particularly in forms of mental illness, such as neurosis and hysteria, and in finding ways to cure those mental illnesses. As a philosopher, Freud was interested in looking at the relationship between mental functioning and certain basic structures of civilization, such as religious beliefs. Freud believed, and many people after him believe, that his theories about how the mind worked uncovered some basic truths about how an individual self is formed, and how culture and civilization operate.
When Freud looks at civilization (which he does in Civilization and its Discontents), he sees two fundamental principles at work, which he calls the "pleasure principle" and the "reality principle." The pleasure principle tells us to do whatever feels good; the reality principle tells us to subordinate pleasure to what needs to be done, to work. Subordinating the pleasure principle to the reality principle is done through a psychological process Freud calls SUBLIMATION, where you take desires that can't be fulfilled, or shouldn't be fulfilled, and turn their energy into something useful and productive. A typical Freudian example of this would focus on sex. Sex is pleasurable; the desire for sexual pleasure, according to Freud, is one of the oldest and most basic urges that all humans feel. (The desire for sexual pleasure begins in early infancy, according to Freud. We'll get to that in a bit). But humans can't just have sex all the time. If we did, we'd never get any work done. So we have to sublimate most of our desires for sexual pleasure, and turn that sexual energy into something else--into writing a paper, for example, or into playing sports. Freud says that, without the sublimation of our sexual desires into more productive realms, there would be no civilization.
The pleasure principle makes us want things that feel good, while the reality principle tells us to channel the energy elsewhere. But the desire for pleasure doesn't disappear, even when it's sublimated to work. The desires that can't be fulfilled are packed, or REPRESSED, into a particular place in the mind, which Freud labels the UNCONSCIOUS.
Because it contains repressed desires, things that our conscious mind isn't supposed to want, and isn't supposed to know about, the unconscious is by definition inaccessible to the conscious mind--you can't know what's in your unconscious by thinking about it directly. However, there are some indirect routes into the contents of the unconscious.
The first, and perhaps most familiar, is dreams. According to Freud in The Interpretation of Dreams), dreams are symbolic fulfillments of wishes that can't be fulfilled because they've been repressed. Often these wishes can't even be expressed directly in consciousness, because they are forbidden, so they come out in dreams--but in strange ways, in ways that often hide or disguise the true wish behind the dream.
Dreams use two main mechanisms to disguise forbidden wishes: CONDENSATION and DISPLACEMENT. Condensation is when a whole set of images is packed into a single image or statement, when a complex meaning is condensed into a simpler one. Condensation corresponds to METAPHOR in language, where one thing is condensed into another. "Love is a rose, and you'd better not pick it"--this metaphor condenses all the qualities of a rose, including smell and thorns, into a single image. Displacement is where the meaning of one image or symbol gets pushed onto something associated with it, which then displaces the original image. Displacement corresponds to the mechanism of METONYMY in language, where one thing is replaced by something corresponding to it. An example of metonymy is when you evoke an image of a whole thing by naming a part of it--when you say "the crown" when you mean the king or royalty, for example, or you say "twenty sails" when you mean twenty ships. You displace the idea of the whole thing onto a part associated with that thing. You might think of condensation and metaphor as being like Saussure's syntagmatic relations, which happen in a chain (x is y is z), and displacement and metonymy being like Saussure's associative relations.
Another way into the unconscious besides dreams is what Freud calls PARAPRAXES, or slips of the tongue; he discusses these in The Psychopathology of Everyday Life. Such mistakes, including errors in speech, reading, and writing, are not coincidences or accidents, Freud says. Rather, they reveal something that has been repressed into the unconscious. A third way into the unconscious is jokes, which Freud says are always indicative of repressed wishes. He discusses this route to the unconscious in Jokes and Their Relation to the Unconscious.
You can probably tell from these three routes into the unconscious--dreams, parapraxes, and jokes--that psychoanalysis asks us to pay a lot of attention to LANGUAGE, in puns, slips of the tongue, displacements and condensations, etc. This suggests how psychoanalysis is directly related to literary criticism, since both kinds of analysis focus on close readings of language. Psychoanalytic literary criticism--or at least the kind that's based on Freud's ideas--often fits better with the humanist models of literary production than with the structuralist and post-structuralist models.
Whatever route is taken into the unconscious, what you find there, according to Freud, is almost always about sex. The contents of the unconscious consist primarily of sexual desires which have been repressed. Freud says that sexual desires are instinctual, and that they appear in the most fundamental acts in the process of nurturing, like in a mother nursing an infant. The instincts for food, warmth, and comfort, which have survival value for an infant, also produce pleasure, which Freud defines specifically as sexual pleasure. He says our first experiences of our bodies are organized through how we experience sexual pleasure; he divides the infant's experience of its body into certain EROTOGENIC ZONES. The first erotogenic zone is the mouth, as the baby feels sexual pleasure in its mouth while nursing. Because the act of sucking is pleasurable (and, for Freud, ALL pleasure is sexual pleasure), the baby forms a bond with the mother that goes beyond the satisfaction of the baby's hunger. That bond Freud calls LIBIDINAL, since it involves the baby's LIBIDO, the drive for sexual pleasure.
These erotgenic zones are the ORAL, the ANAL, and the PHALLIC, and they correspond to three major stages of childhood development. They take place roughly between the ages of 2 to 5, though Freud was often revising his estimate of the ages when these stages occurred; later psychoanalysts argue that the oral stage begins soon after birth, with the first experience of nursing, and that the phallic stage ends somewhere between ages 3 to 5. The exact ages at which an infant goes through these stages are less important, in understanding psychoanalysis as theory, than what those stages represent. The oral stage is associated with incorporation, with taking things in, with knowing no boundaries between self and other, inside and outside. The anal stage (which Freud says has a lot to do with toilet training) is associated with expelling things, with learning boundaries between inside and outside, and with aggression and anger. The phallic stage--and Freud argues that "phallic" refers to both penis and clitoris, and is common to both boys and girls--leads a child toward genital masturbation, and hence to the gateway of adult sexuality.