The Infield Fly rule takes into effect when there are runners at first and second or first, second and third with less then two outs. When the batter hits a fly ball (it can not be a line drive) to one of the infielders that should be caught with ordinary effort the batter is automatically out and the runners are allowed to advance at their own risk.
Even though this initially seems to hurt the offense it actually helps them. If this rule was not in place then the fielder could let the ball drop infront of him and, since the runners weren't running in fear that the ball could get caught, he could easily get a double or triple play.
If a ball that was called an Infield Fly lands foul then it will be treated the same way asa normal foul ball.
To call an Infield Fly the umpire should first recognize that the Infield Fly situation is in effect (he should know this because he and the other umpire should have a set of discreet signals in place that they discussed at the beginning of the game that help keep them in tuned to the situation) and then, once the ball is at its apex he should point to it and call Infiled Fly.