The normal hip joint consists of a ball rotating inside a socket. The ball is called the head of the femur (click on this for flash animation) and the socket in the pelvis is called the Acetabulum. The surface of the femoral head and the acetabulum (i.e. the ball and the socket) is covered by a protective layer of cartilage ( the white lining seen in the pic). This makes the joint smooth and reduces friction during movements. It covers and protects the bone like the rubber of a car tyre.

Any condition that damages the Cartilage will lead to pain, dysfunction and eventually arthritis. Cartilage can get damaged due to a number of reasons including Injury, Infection, Ankylosing Spondylitis, Avascular Necrosis ( loss of blood supply to bone), Rheumatoid Arthritis, Osteoarthritis, Developmental problem like bone Dysplasias, slipped upper femoral epiphyses etc.