The Earth itself behaves, to a good first approximation, like a giant bar magnet, with a magnetic field that permeates the space around it and extends outward into the surrounding region called the magnetosphere. Interestingly, the Earth's geographic north pole is actually close to the location of a magnetic south pole (in the magnet sense), and the Earth's geographic south pole is close to a magnetic north pole — this is precisely why the north-seeking pole of a compass needle (which is attracted toward an unlike, i.e. south, magnetic pole) points toward the Earth's geographic north. The exact cause of the Earth's magnetism is attributed to convective motions of molten iron and nickel in the Earth's outer core, which is electrically conducting, combined with the Earth's rotation — a mechanism referred to as the 'geodynamo' theory.

Magnetic Elements (Brief)

The Earth's magnetic field at any location is fully described by three quantities, together called the elements of Earth's magnetism:

Magnetic declination: The angle between the geographic north-south direction (true north, based on the Earth's axis of rotation) and the magnetic north-south direction (the direction a freely suspended compass needle actually points). Because the Earth's magnetic poles do not coincide exactly with its geographic poles, and because the magnetic poles slowly drift over time, magnetic declination varies from place to place and changes gradually with time; navigators and surveyors must correct compass readings for the local declination to obtain true geographic directions.
Magnetic inclination (angle of dip): The angle that the Earth's total magnetic field makes with the horizontal plane at a given location. At the magnetic equator, field lines are essentially horizontal (dip is close to 0°); at the magnetic poles, the field lines point almost straight down/up into the ground (dip is close to 90°).
Horizontal component of the Earth's magnetic field: The component of the total magnetic field intensity along the horizontal direction at a given place; this is the component that actually causes a horizontally pivoted compass needle to align itself and point in a definite direction.