The first thing we need to understand is what normal dog hips are, in order to understand what dysplastic hips are.
The hip joint is the connection of the thigh bone or femur to the pelvis. The femur ends in a rounded tip call the 'head of the femur' and this head should fit into the acetabulum or hip socket in the pelvis. The head of the femur is actually covered in cartilage which is smooth allowing the femur head to rotate and pivot in this socket and give a wide range of motion. These cartilage heads inside the joint are contained further in a capsule containing synovial fluid. Think of it this way - the hip is the largest joint in the body and takes the largest amount of the body weight, even in 4 legged canines. The cartilage is smooth, and the synovial fluid provides a lubricant (like oil in your car), to prevent friction and wearing of the cartilage surface.
On xray normal canine hips look as the xray example below
Image provided by Joel Mills. Notice how the head of the femur is well rounded and fits inside the socket. This shape allows the leg to move in round directions, unlike a knee joint for example that allows only movement backwards and forwards.
Obviously normal hip joints are critical for an active dog lifestyle as they control most of the dogs movement.
Links to article sections for Canine Hip Dysplasia: