I'm sure Basil will have a better explanation than I can come up with, but we'll use the example that comes to mind from an Insider Trader column a few weeks ago...

Lets say you are selling Glacial Bags (this is something I've got experience with). As time goes on, the price is going to go down, especially with undercutting and whatnot. Right now it wavers between 300-450g a pop on my server. Now, you're not going to force the price of Glacial Bags up higher by buying out all your competition so you can relist at a high price- they're just going to be encouraged and list their next glacial bag maybe at the same price, but definitely undercut, and probably make a nice profit from the cloths that sell for about 20-30g on my server (of which you need 8 if I'm recalling correctly)

Now, the idea would be to try to dominate the materials- but the ebonweave and moonshroud up so that the supply is artificially low, and then anyone who wants to buy materials for the bags is forced to pay more- you can take it a step further and try to lower the supply of the component materials for the cloth as well, making it less profitable and less likely that people are going to compete.

The other thing you really need to remember is that you can't use these guides as-is and just assume they are going to work; you need to feel out your server a bit. Hell, you might even end up losing some gold. But really, in the end, even if you lost some gold on whatever it was you bought, you're probably making more on other things.