CPUs (and other components) are "clocked", or rated for a particular cycle speed and voltage.
A new batch of CPUs is baked. A sample of them are tested to see what performance they have. Some headroom is left for safety. The Core2Duo line is remarkable for its HUGE headroom ... lots of room for overclock due to a very conservative clockspeed set by Intel.
Also, if a batch of high-end CPUs, say the Core2Duo Extreme Edition E6700, fails to be reliable at a given speed, they are branded at a lower speed, say the E6320.
Overclocking, via the BIOS on the motherboard and all handled in software these days, allows the direct control of the voltage across the component (CPU in this case), as well as the multiplier and base frequency configurations ... all of which combine to give the final speed of the CPU.
Case in point: the E6320 has two cores, both of which are clocked at 1.86GHz. In their test published in the current issue, Custom PC overvolted the CPU to 1.525V to raise the clock speed to 2.8GHz. This is faster than the stock speed of the fastest Core2Duo on the market, the E6700, which runs at 2.66GHz.
Pumping more power through a CPU may cause it to lose some longevity (what do you do with your ten-year-old CPUs?), but the main side-effect is a higher power bill and more waste heat, hence the need for good cooling to overclock further. (Some people like to indulge in extreme overclocking, using liquid nitrogen and attempting to see how fast they can clock the CPU for one safe boot of Windows at a time, for example: speeds of 10GHz have been achieved.)