A continuously variable transmission or CVT is a type of vehicle transmission notable for its substitution of elastic bands, chains, or toroids for gears to create an automatic transmission without, or less dependent on, a torque converter. In other words, the driver gets the convenience of automatic without a noticeable loss in fuel economy.

Geared transmissions control the car's torque through the use of a set of gears. Each gear is used to roughly match the revolutions of the engine to the driveshaft to produce the most efficient combination for movement. In a manual transmission car it's easy to experience this. Try starting a small four cylinder car in even 3rd gear, and risk placing a lot of pressure on the clutch.

Not so with a geared automatic transmission. The "automatic clutch" or torque converter "slips" consistently to allow the car to be engaged in gear while resting, and allow for smooth takeoffs with the downside of gross fuel waste. Modern automatics have "lock up" converters to prevent slipping when cruising, but fuel economy still suffers a bit even with the best electronically controlled automatic transmission. The use of non-lock up torque converters prevented the use of fully automatic transmissions in cars of low displacement. Because of this manual transmission has survived well in Europe, given high fuel prices and the small displacement of cars there.

One of the earliest CVT systems is called the "Van Doorne" Variomatic system, made famous by the small Dutch company DAF. Instead of relying on compression like the Van Doorne, most CVT belt systems stretch between pulley(s), spanning the driveshaft and engine. The pulleys create variable diameters to constantly modify the torque range of the car, keeping the revolutions in a narrow peak effectiveness. Early systems like the authentic Van Doorne suffered from the inability to handle the torque of engines more than 1.5l realistically. Also, many were high maintenance and sluggish, though economical. Volvo (who purchased DAF), Subaru, Fiat and a few others marketed CVTs on small models, but consumers ran to stickshifts.

While some automakers are experimenting with hybrid CVTs that use torque converters for "smoothness", others are using toroids to allow for greater torque and economy. Toroids distribute friction between spinning disks, instead of in the movement of pulleys.

CVTs are becoming fashionable again, mostly because it's an automatic transmission that can be used with small engines without significant loss of power and torque distribution. The only downside is driver habit -- try explaining to a driver why his/her transmission does not rise in revolution at the same pace as the vehicle gains speed. Likewise, CVT cars tend to remain at a constant engine note. But performance gains coupled with economy make CVT's great devices -- especially in markets where automatic transmission sales are high.

try http://www.swri.org/atts/cvt/makart.htm for a little information. Also, thanks to Kidas for some clarifications.