Oracle uses for its read consistency model a true multi-versioning approach which allows readers to not block writers and vice-versa, writers to not block readers. Obviously this great feature allowing highly concurrent processing doesn't come for free, since somewhere the information to build multiple versions of the same data needs to be stored.
Oracle uses the so called undo information not only to rollback on-going transactions but also to re-construct old versions of blocks if required. Very simplified when reading data Oracle knows the point in time (which corresponds to an internal counter called SCN, System Change Number) that data needs to be consistent with. In the default READ COMMITTED isolation mode this point in time is defined when a statement starts to execute. You could also say at the moment a statement starts to run its result is pre-ordained. When Oracle processes a block it checks if the block is "old" enough and if it discovers that the block content is too new (has been changed by other sessions but the current access is not supposed to see this updated content according to the point-in-time assigned to the statement execution) it will start to create a copy of the block and use the information available from the corresponding undo segment to re-construct an older version of the block. Note that this process can be iterative: If after re-constructing the older version of the block it's still not sufficiently old more undo information will be used to go further back in time.