Sorry for the late response, Munque-chick – thehillsofsomerset's bob on though. The cashback is paid by the retailer to the cashback site (via an intermediary). It's important to remember that it's NOT guaranteed but works more often than not. If it doesn't track, TopCashBack have been very good at chasing it up – I had a decent one from Comet that took ages but eventually came through.
It's effectively a marketing payment that the retailers pay to get people to click through and purchase on their site. TCB and others pay you that money (or a portion of it – dunno how much ACTUALLY gets paid back).
It's not immediate, but it's pretty cool seeing your balance increase. On TCB, you can request payment at any time (subject to some simple requirements), so every few weeks, I get £10 or £20 paid out to my paypal or savings a/c. Like thehillsofsomerset said the massive payouts are on things like utilities, phone contracts, insurance, that kind of thing – but an extra few percent on the bike stuff feels good too!