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Alternating Current
motor
http://en.wikipedia.org/wiki/Polyphase_system
ac_1
http://en.wikipedia.org/wiki/Induction_motor#Principle_of_operation
What distinguished Tesla from the rest of the world at the time was his passion to harness the power of alternating current. Direct current was very inefficient because it could not achieve the high voltages needed to carry electricity over long distances. This resulted in the need for numerous power stations at very short intervals.

Alternating current on the other hand changes direction 50 to 60 times every second, hence the name 'alternating current.' This meant that higher voltages could be achieved along with efficiency.

Power = Current * Voltage
More voltage means more power

No one before Tesla had been able to produce a motor able to run on AC directly. Most systems at the time had to convert AC into DC for the available motor technology. His invention was a motor that could run off a rotating magnetic field. How this works is the stator of the motor is supplied with an AC current. The stator creates an magnetic field and the rotor rotates in sync with alternating current oscillations. The illustration at right shows the rotor rotating with the different oscillations. Below is a diagram of a basic induction motor.
diagram
http://www.automatedbuildings.com/news/jul01/art/abbd/abbd.htm