How do mutual funds trade?

I would like to know how mutual funds and index funds really work.

Say I buy a mutual fund (or index fund) for 1000€, does the manager of the fund take my 1000€ and buy the shares that make up the fund? What about comissions that he then have to pay, it must certainly add up to a big amount, since most funds include many shares!

I'm confused...

So am I.
I rally hope some members out there will respond to your questions , cuz im sure alot of people want to know the answer to this.