Good question ! As a matter of fact, our keyboard is just like that of the Americains. In order to use letters, Mr. WANG (WANG Lijia), professor of the peking university, has invented a special coding named "pinyin". The idea is to give a code to each character according to its pronunciation. We input this kind of code of pronunciation from a normal keyboard (using letters, ofc) then the computer will decode these codes into characters thanks to some powerful tools (ex. google pinyin).
It is obvious that different characters may have the same pronunciation, so each code could be translated into a variety of characters. The computer will ask you to make the choice for each code so as to make a sentence or an expression.
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I found this video in youtube that may interest you (an exemple of inputing chinese in Windows xp),
http://fr.youtube.com/watch?v=7NKu9Uu8uf8&feature=related------------
But, it's true that we used a special chinese keyboard long ago... that was out of date. And i could't give you any details of that keyboard cuz it's too complicated for you and for me. So excuse me.
If you have any more questions, you might post in this thread and i will try to answer them.
regards