Quantitative Easing Explained: http://www.npr.org/blogs/money/2010/10/07/130408926/quantitative-easing-explained
The short of it is that you're right; the Fed (or another country's Central Bank) is basically creating a large amount of new money, which it then injects into the economy by buying government and institutional debt.
This is, in fact, one of the main jobs of the central bank for a currency; to manage the money supply, which in most fiat systems involves slowly increasing the amount of money to keep the economy growing (if there isn't enough money moving around in the economy it's reflected in a slowdown in GDP growth), while controlling inflation (the devaluation of a unit of currency with respect to most or all things that unit will buy including other currencies).
Inflation's primary cause is defined quite simply as "too many dollars chasing too few goods". When demand is low for cash (because you have a lot of it) while demand for goods is high, the suppliers of those goods will increase their price for the goods (because people are willing to pay that higher price) and will also produce more.
With quantitative easing, the central bank is increasing the money supply by several percentage points of GDP, much higher than is normally needed. This normally would cause the two things you mentioned:
Inflation - inflation's primary cause is "too many dollars chasing too few goods"; when money is easy to get and various types of goods and services are not, people "bid up" the price on these things to get them (this usually happens when sellers see high demand for a product and increase the price to take advantage and to prevent a shortage). This often happens across the board in a situation like this, but there are certain key drivers that can cause other prices to increase (things like the price of oil, which affects transportation costs and thus the price to have anything shipped anywhere, whether it be the raw materials you need or the finished product you're selling). With the injection of so much money into the economy, rampant inflation would normally be the result.
However, there are other variables at play in this particular situation. Chief among them is that no matter how much cash is in the economy, most of it is being sat on, in the form of cash or other "safe havens" like durable commodities (gold) and T-debt. So, most of the money the Fed is injecting into the economy is not chasing goods; it's repaying debt, replenishing savings and generally being hoarded by consumers and institutions as a hedge against the poor economy. In addition, despite how many dollars are in the economy right now, those dollars are in high demand all around the world to buy Treasury debt (one of the biggest safe havens in the global market right now, so much so that buying T-debt is considered "saving"). This is why the yields on Treasury bonds and notes are at historic lows; it's bad everywhere, and U.S. Government debt is one of the surest things in the world market, especially now that Euro-bonds have become suspect.
Currency Devaluation - This is basically specialized inflation; when there are more dollars in the market than people want to have in order to use to buy our goods and services, demand for our currency (the medium of trade for our goods and services) drops, and it takes fewer Euros, Yen or Yuan to buy a dollar. This can happen even if demand for our dollars inside our own borders is high, and is generally a function of our trade situation; if we're buying more from other countries than they are from us, then our dollars are flooding the currency exchange markets and thus become cheaper because they're easy to get.
Again, there are other variables at play here that keep our currency strong. First off, again, it's bad everywhere; nobody's buying anything from anyone (relatively speaking) and so the relative trade deficits aren't moving much. In addition, devaluation without inflation is self-stablizing; if currency devalues but inflation is low, the cheaper currency makes the things that currency can buy cheaper, which encourages people to buy them. At the same time, the more expensive foreign currency increases the cost in dollars of foreign-made goods. All of this can be beneficial from a money policy standpoint; devaluation makes American goods cheaper to Americans and to foreign consumers alike than foreign goods, and so a policy that puts downward pressure on the dollar but doesn't make inflation a risk can help American manufacturing and other producer businesses. China knows this just as well as we do, and for decades has been artificially fixing the exchange rate of the Renmin B (Yuan) lower than its true value against the dollar, meaning that no matter how cheap American goods get on the world market, Chinese goods are still cheaper, because by definition the Yuan has greater purchasing power for the same cost in dollars.
In addition, dollars aren't only used to buy American-made goods and services. The U.S. has positioned its currency over the years to be an international medium of trade for several key commodities (like oil), and the primary currency for global lenders like the IMF and the World Bank. That means that dollars become necessary to buy these things, and are received from and must be repaid to these institutions, and thus the dollar has a built-in demand pretty much regardless of our trade deficits.
On top of all that, a lot of countries base their own currencies on our dollar, by basically buying dollars (using other valuable media like gold or oil) and then holding that cash in their own central banks as the store of value backing their own paper money. This is called a "dollar board". Their money becomes worth a particular fraction of a dollar by definition, and that relationship is very precisely controllable; with 10 billion dollars in the vault, and 20 billion Kabukis issued from Kabukistan's central bank, a Kabuki is worth $.50. Print an additional 20 billion Kabuki and the value of one Kabuki decreases to $.25; buy an additional 10 billion dollars and the Kabuki's value increases again to $.50. Quite a few countries do this, mostly in South America, again creating a built-in demand for U.S. dollars and also tying the U.S. dollar to the value of the exports of that country. If Kabukistan's goods become highly demanded by Europe, and its currency increases relative to the dollar, then the U.S. dollar gets a boost because by definition it is worth an exact, fixed number of Kabukis (and also because a country with a dollar board typically has no problem accepting dollars as payment and then printing Kabukis to maintain the exchange rate)