A dune buggy is a type of vehicle that has an open cockpit, and large off road tires. They are usually very light vehicles, and have an uncovered engine mounted in the rear.
The original method of dune buggy manufacture involved tearing apart existing vehicles and reusing their drivetrain, electrical system, and other mechanical bits. The donor car for choice was the Volkswagen Beetle (and other Volkswagens as well). In the most basic cases the car was simply weight stripped, fitted with larger tires, and the fenders were removed. While other conversions included complete fiberglass body kits.
The VW based Beetle conversions soon gave way to a new and more popular type of dune buggy, the sand rail. Sand rails are built around a steel tubular frame, with no actual body panels. These sand rails were often still based around Volkswagen mechanicals, but the custom frames allowed for use of custom suspensions, and allowed the builder to use thoroughly wrecked Beetles as donor cars. Some builders custom welded their own frames, while other people would buy frames already welded from the many different companies catering to the booming sand rail business. Classically these sand rails would have seating for two and a four cylinder engine, although smaller single seat designs, and large V8 equipped monsters were also rather common.
Dune buggies were originally created to use on beaches, but as time progressed they began gaining popularity as a general off road vehicle. The main difference seems to be what type of tires are on them. Many people even license their dune buggies and run them on the street. This was easiest with conversions, as they likely still had a title and the VIN number from the original vehicle.
Today most new dune buggies are built in factories, or by professional builders. The lack of readily available Volkswagen donor cars has really caused a decline in the number of hobby builders. There just wasn't ever another common vehicle (besides the Beetle) that so readily lent itself to conversion. Some builders still use Volkswagen engines, but they aren't ripping up many actual cars to get them anymore. Factory built dune buggies may use anything from a tiny little 49cc motor scooter engine, all the way up to larger 4 cylinder engines. The 4 cylinder models usually use Subaru engines, as Subaru's engine design is really similar to the old Volkswagen engines.