This article is from the storage FAQ part1, by Rodney D. Van Meter with numerous contributions by others.
Magneto-optical disks are plastic or glass disks coated with a compound (often TbFeCo) that has special properties. The disk is read by shining a low-intensity laser (originally infrared, but experiments are being conducted all the way up to blue, I believe; the shorter the wavelength the higher the possible density, all things being equal (which they never are)) onto the media and examining the polarization of the reflected light. To write, a higher-intensity laser is used to heat the material up to its Curie point, where it becomes susceptible to a magnetic field. When the media cools again, its state is "frozen". The polarity of the reflected light during a read depends on the polarity of the magnetic field under which the media was last cooled. Once it has cooled it is no longer suceptible to magnetic fields. Thus, it can be compared in a sense to paleomagnetism.