Trading in foreign exchange or currency is called as Forex trading. In India it is absolutely legal to trade in foreign exchange as long as one is dealing with four currencies approved by RBI viz., US Dollar, GB Pound, EURo and Japense YEN. However, you need to trade with brokers having memberships in these exchanges. These brokers are called as Forex brokers. These days even individuals can start trading in foreign exchange or currencies.
Forex trading is similar to equity trading. As the price of shares move up or down, you book profit or loose money, in the similar fashion you gain or loose money in the forex trading market.