I'm sorry that I just post a link, but it is unnecessary to explain the wheel twice, and this wheel is perfectly described in this answer by Pieter Wuille: http://bitcoin.stackexchange.com/questions/10090/how-to-get-an-addresss-balance-with-the-bitcoin-client.

(@Mods, I am not exactly sure about the answering policies here, but if this is not allowed could one please message me and remove this post?)