Every atom in a potentially ferromagnetic material has its own individual, minute magnetic field. Normally each of these small fields cancels each other out, meaning the material has no overall magnetic field or dipole. For there to be a field, each atom has to be aligned in the same direction --- the more aligned the atoms, the stronger the field. This alignment is brought about by some kind of external stimulus; however, in a permanent magnet the atoms remain aligned once this stimulus has been removed.
Permanent magnetism can be imparted by stroking a bar of ferromagnetic material with another magnet. This causes the atoms in the bar to become aligned, which makes it magnetic. A similar method involves using a piece of silk and a needle. The needle can be made slightly magnetic by stroking it one direction with the silk. Such a method was used by Allied soldiers in World War II to create makeshift compasses.
Applying a direct electrical current will also magnetize a piece of metal.
Electromagnets work in this way. However, some permanent magnetism will be retained once the current has been removed. Repeated exposure to an electric field will cause hard magnetic materials such as steel or alloys of barium and iron oxides to become strongly magnetic. Conversely, soft materials such as iron tend to be used as electromagnets because their magnetism can be switched on and off as desired.
Permanent magnetism will be lost if the atoms in a magnet become misaligned. The simplest way to do this is with physical trauma. A bar magnet will be much weaker once it has been hit a few times with a hammer. Demagnetization occurs with heating, as this causes the atoms to become misaligned. An alternating electrical current will also destroy a magnet by re-randomizing the alignment of its atoms.