DarkSend is the name of the decentralized mixing implementation that obfuscates and provides a greater degree of privacy/anonymity to the transactions of the Darkcoin network. It is in active development (RC 4 released / RC5 in development as of mid-September 2014) and will be open-sourced when complete.
Obfuscation is achieved by using network nodes in order to break up and reroute the flow of money in a way that is hard to track down. Further obfuscation takes place by using similarly sized pools of money which makes it difficult to pin-down identical amounts to a certain transaction especially when multiple transactions are occurring simultaneously, all with the same amount of money. Multiple rounds of mixing are employed so that tracking payments becomes exceedingly difficult as the number of mixing rounds increases.
This process requires more time than normal transparent transactions as time is needed to accommodate the pooling of multiple transactions. To solve this issue, the ability to pre-mix coins has been implemented so that one can use “anonymized” coins right away (starting from RC4). RC5 will offer increased anonymity due to using 3 instead of 2 mixing peers.
DarkSend nodes are awarded 20% of mined blocks for the anonymity service they provide to the network. However a requirement of 1000 DRK to run a DarkSend node (or “masternode”) has been put in place. The reasoning behind this requirement is to avoid an excess number of DarkSend nodes being controlled by a “bad actor” – a term which refers to a third party that intends to map out the transactions of the network by controlling the network nodes. By using a monetary requirement for the running of each node it is ensured that a “bad actor” will not be able to acquire a very large number of nodes. At the same time, legitimate holders of Darkcoins will be able to gain an income by offering the anonymity service.
The white paper authored by the developers of Darkcoin and DarkSend, explaining the functionality of DarkSend. (Outdated as the spec of DarkSend has evolved)
Kristov Atlas review of DarkSend+ operation (more accurate representation of RC4+ functionality of DarkSend than the official paper): http://cdn.anonymousbitcoinbook.com/darkcoin/darksend-paper/Atlas_Darksend-Analysis-v001.pdf
Evan Duffield response on DarkSend+ operation: https://darkcointalk.org/threads/reply-to-kristovs-paper.2325/
Current Beta / RC version of the DarkSend-enabled wallets can be downloaded here: http://www.dash.org