Not quite sure what you're asking. Which are you referring to?
A) Site owner has a regular opt-in list to which he sends a periodic newsletter through e-mail. Advertisers pay the owner money to include their advertisements in the newsletter.
B) Site owner has a regular opt-in list to which subscribers have agreed to receive emails/advertisements from 3rd party advertisers associated with the site. Advertisers pay the owner to send out their advertisements to the list.
C) Site owner has a list of e-mail addresses that he sells to advertisers.

A is common, legit, and can make site owners decent money if they have a large subscriber base.
B is also common (think banks, credit card companies, magazines, etc.) and more or less legit, as long as the original signup was clearly opt-in and you can later opt-out easily.
C is pretty much just spam.

Getting the e-mail addresses is as easy as adding for simple form on your site saying "Enter your e-mail address to join our mailing list." But you should also have a double opt-in confirmation mechanism- an e-mail is sent to the address and the recipient has to click on a link to verify that he really does want to subscribe.

Thank you LifeinAsia.

How does the newsletter work? Does he simply type in or import all the emails and BCC them using his own email address or is there usually a Plugin or Script that automatically does all that?

I have a site that generates a million unique visitors/month but I can not monetize it properly. Over 90% of the traffic is from the Middle East, which Google Adsense either blocks ads from those specific IP addresses or only pays a few cents per click.

Reading about others making thousands of dollars with less traffic just frustrates me why I can't properly monetize the site. I tried a few Affiliate links but that also didn't generate much cause most of my audience do not have a credit card. The traffic is mostly coming from 3rd world countries that can not purchase products from US or Europe nor do they have an internationally accepted credit card such as a Visa, Master Card or Paypal.

So I figured a newsletter may be another option since I have read a few popular bloggers have been making over a million dollars in revenue and when they break that down I noticed they've been making over 100K in newsletter etc...

How does the newsletter work?

There is no one answer, It can be anything from simply doing a BCC from the email client (definitely not CC but some people do do it!) through to outsourcing to a specialist company depending on volumes.

People that earn money with their newsletters do that by selling to a targeted group. If your newsletter recipients don't buy online, then simply receiving your newsletter won't generate a lot of money.

Start by building your email list, people who sign up and opt in to receive your newsletter. Mailings can be managed either in-house (by you or an employee) or by email services.

To get a good idea of how it all works, search for email services, visit some and read through their requirements and suggestions. Most offer a free trial period so you can evaluate the success of your plan before committing to it. The value of these services is that they remove a lot of the risk of blacklisting since they depend on email being delivered. They also offer you tools to manage your list and build more attractive newsletters.