How does AIS work?

[Haddock1]

All,
I have an AIS B system on my boat which is a transponder which is linked to my plotter. It's a great system and shows closest point of approach and a vector line. Beats hand held compasses like in the old days. Anyway, when in use I can see vessels that are transmitting AIS data via VHF from my masthead aerial which give a range of circa 20 miles. Easy to understand. What I don't understand is that if I zoom out on the plotter I can also see vessels which are over the horizon/line of sight of the aerial (i.e. sailing from Palma, Mallorca, I can see vessels on the coast of Spain). So the question (drum roll) how is this possible???? Also, when on the internet, I can track friends who are still out in the Med and have the same system as me, through services such as Marine Traffic. Clearly tucked up at home in the UK how am I able to see their boats?
Any insight most welcome.
Confused Haddock.