The Circle is the place where magical work is carried out. It might literally be circle on the ground, or it could be a church, or a stone ring, or a temple, or it might be an imagined circle inscribed in the aethyr, or it could be any spot hallowed by tradition. In some cases the Circle is created specifically for one piece of work and then closed, while in other cases (e.g. a church) the building is consecrated and all the space within the building is treated as if it is an open circle for long periods of time. I don't want to deal too much in generalities, so I will deal with the common case where a circle is created specifically for one piece of work, for a period of time typically less than one day.
The Circle is the first important magical limit: it creates an area within which the magical work takes place. The magician tries to control everything which takes place within the Circle (limitation), and so a circle half-a-mile across is impractical. The Circle marks the boundary between the rest of the world (going on its way as normal), and a magical space where things are most definitely not going on as normal (otherwise there wouldn't be any point in carrying out a ritual in the first place). There is a dislocation: the region inside the circle is separated from the rest of space and is free to go its own way. There are some types of magical work where it may not be sensible to have a circle (e.g. working with the natural elements in the world at large) but unless you are working with a Power already present in the environment in its normal state, it is useful to work within a circle.
The Circle may be a mark on the ground, or something more intangible still; my own preference is an imagined line of blue fire drawn in the air. It is in the nature of consciousness that anything taken as real and treated as real will eventually be accepted as Real - and if you want to start a good argument, state that money doesn't exist and isn't Real. From a ritual point of view the Circle is a real boundary, and if its usefulness is to be maintained it should be treated with the same respect as an electrified fence. Pets, children and casual onlookers should be kept out of it. Whatever procedures take place within the Circle should only take place within the Circle and in no other place, and conversely, your normal life should not intrude on the Circle unless it is part of your intention that it should. Basically, if you don't want a circle, don't have one, but if you do have one, decide what it means and stick to it. There is a school of thought which believes a circle is a "container for power", and another which believes a circle "keeps out the nasties". I subscribe to both and neither of these points of view. From a symbolic point of view, the Circle marks a new "circle of normality", a circle different from my usual "circle of normality", making it possible to keep the two "regions of consciousness" distinct and separate. The magician leaves everyday life behind when the Circle is opened, and returns to it when the Circle is closed, and for the duration adopts a discipline of thought and deed which is specific to the type of magical work being undertaken; this procedure is not so different from that in many kinds of laboratory where people work with hazardous materials. The circle is both a barrier and a container. This is a kind of psychic sanitation, and in magic "sanity" and "sanitary" have more in common than spelling.
Opening a Circle usually involves drawing a circle in the air or on the ground, accompanied by an invocation to guardian spirits, or the elemental powers of the four quarters, or the four watchtowers, or the archangels, or whatever. The details aren't so important as practicing it until you can do it in your sleep, and you should carry it out with the same attitude as a soldier on formal guard duty outside a public building. You are establishing a perimeter under the watchful "eyes" of whatever guardians you have requested to keep an eye on things, and a martial attitude and sense of discipline creates the right psychological mood.
Suggested free e-books to read:
Howard Phillips Lovecraft - The TreeTuesday Lobsang Rampa - Feeding The Flame
Aristotle - On The Soul
