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Creatine works by helping transport water into the muscle tissue. This leads some people to say that creatine's effects is due only to increased water retention, which isn't accurate. Water retention is when your body accumulates water outside of your muscle tissue (such as encountered w/ bloating). By facilitating transfer of water into the muscle tissue, the creatine helps with boosting workouts, lower recovery time, and decreasing DOMS (delayed onset muscle soreness).
Creatine definitely works. Once you stop taking it, you will lose some of the increased mass/weight but some of the increase will stay. I'd recommend taking your daily dose either 30 min's before your workout or immediately after. If taken after, mix with a sugary drink to spike your insulin for even better effect.
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