IDS come in a variety of flavors and approach the goal of detecting suspicious traffic in different ways. There are network based (NIDS) and host based (HIDS) intrusion detection systems. There are IDS that detect based on looking for specific signatures of known threats- similar to the way antivirus software typically detects and protects against malware- and there are IDS that detect based on comparing traffic patterns against a baseline and looking for anomalies. There are IDS that simply monitor and alert and there are IDS that perform an action or actions in response to a detected threat. Well cover each of these briefly.
Network Intrusion Detection Systems are placed at a strategic point or points within the network to monitor traffic to and from all devices on the network. Ideally you would scan all inbound and outbound traffic, however doing so might create a bottleneck that would impair the overall speed of the network.
Host Intrusion Detection Systems are run on individual hosts or devices on the network. A HIDS monitors the inbound and outbound packets from the device only and will alert the user or administrator of suspicious activity is detected
A signature based IDS will monitor packets on the network and compare them against a database of signatures or attributes from known malicious threats. This is similar to the way most antivirus software detects malware. The issue is that there will be a lag between a new threat being discovered in the wild and the signature for detecting that threat being applied to your IDS. During that lag time your IDS would be unable to detect the new threat.
An IDS which is anomaly based will monitor network traffic and compare it against an established baseline. The baseline will identify what is normal for that network- what sort of bandwidth is generally used, what protocols are used, what ports and devices generally connect to each other- and alert the administrator or user when traffic is detected which is anomalous, or significantly different, than the baseline.