So do you somehow make more steem the more steem you have? Is that how it works? Can someone please help me understand how this works?
That would be considered a Ponzi scheme 
Amount of steem doesn't impact how much you will earn. You can power up with that steem and get a higher voting power, but the downside is you won't be able to power down for another 2 years after powering up.
Not true though..
Powering down is only like 9 weeks. The 2 year power down was changed about 6 months ago.