When a case comes before a court, the parties to the action present the evidence they need to support their case. The judge listens to the evidence, decides what evidence is relevant and what facts have been proved, decides what law is relevant, and applies that law to the facts in making a decision which is binding on the parties.
The kind of case that a particular court decides depends on the jurisdiction of that court, in other words its authority to determine particular issues. The courts are arranged in a hierarchy, based on the kinds of issues being decided, with appeals from lower courts going to a higher court.
A party to a case who is not satisfied with the court's decision may appeal to a higher court for a reconsideration of the decision. If an appeal is not made within the time allowed, the matter is finalised and the case usually cannot be reopened. If it is made within time, the higher court hearing the appeal can affirm (agree with) or reverse, also called overrule, (go against) the lower court's decision.
The law declared by the judge in the reasons for the court's decision directly affects the parties to the case. That law will also affect, indirectly, people bringing actions involving similar legal principles before other courts in that jurisdiction, because of the doctrine of precedent.
Precedent means that judges are bound to follow interpretations of the law made by judges in higher courts, in cases with similar facts or involving similar legal principles. For example, a decision of a judge in a State Supreme Court (the State's highest court) is binding on judges making decisions in similar cases in all State courts, but not on a judge in a Federal Court (which has a Federal jurisdiction) or in the Supreme Court of another State (the State Supreme Courts are at the same level in the hierarchy of Australian courts).
Some of the rules that make up the doctrine of precedent are: