The short story: Don't let your domain expire.
To begin with, you should recognize that you do not "own" your domain in the sense that you might own a hat or even a pair of socks. A closer analogy would be to say that you lease the domain name similar to the way a business might lease office space. However, this implies that there is an actual owner from whom you lease the domain and that is not quite accurate either.
The closest analogy would be to compare a domain name to a natural resource to which you have been granted a specific lease holder's right to use by a controlling agency (in this case the registry for the TLD containing the domain) which itself does not actually own the domain.
Once upon a time there were only three registries (COM, NET and ORG) and only one registrar (NSI) who managed all three of these. You registered a domain name and that was it. During the rapid commercialization of the Internet, many changes were made in how the registry system works. However, this is a gross over simplification but it will simply have to do. Many of books have been written on this topic and the story is longer than can be dealt with here. If you really care, read Internet Governance in Transition by Daniel J. Paré.
The way it works now is:
Below we have a simple diagram showing how this might work for a fictional domain, acme-charities.org registered by an organization through us:
ICANN <---> Public Interest Registry <---> Tucows <---> Dynamic Network Services <---> ACME Charities, Inc.
Before we talk about expirations we need to briefly discuss transfers. At -almost- any time during the registration period for a domain, the domain can be transferred from one REGISTRAR to another. Typically this is done by submitting a transfer request through the gaining REGISTRAR.
An important point regarding transfers is that they EXTEND the registration period. If a domain is set to expire in August of 2010, after being transferred to another registrar it will have had its registration period extended by a year to August of 2011.
An even more important point regarding transfers is that word "almost". Domains can not be transferred during an initial period (60 days) after they are first registered AND they generally can not be transferred near the end of their registration period.
The first case is due to a basic ICANN requirement and the second is due to the fact that domain transfers can take up to 14 days to complete. If you wait until the end of your registration period to initiate a transfer you run the risk of the registration expiring before the transfer can complete, in which case the transfer will fail.
Since transfers extend the current expiration date there is no good reason to wait until the end of the registration period before transferring the domain. And, since in some cases it may take several weeks to get your current registrar to make a domain available for transfer you should plan ahead.
Ok, time to repeat what we said at the outset.
Don't let your domain expire.
Domain registrations are essentially a lease and are generally "first come first served". If you allow your domain to expire it may be expensive to recover and you run the risk of losing it entirely.
Just as with transfers, domain registration renewal extend the existing expiration date. If your domain is set to expire August 22 of 2010 and you renew it today for one year, it will then have an expiration date of August 22, 2011. Again, don't wait until the last minute.
Should you actually allow your domain to expire you will typically have an opportunity to renew the domain. Who you renew it through and how much it costs will depend on how long the domain has been expired and the TLD the domain is in. Remember the each REGISTRY sets rules for the TLDs they manage, so domains in different TLDs may well have different post-expiration renewal policies.
Domain expirations are a multi-stage process.
For most domains which we register the domain enters into a grace period. During this time the domain is placed on Registrar-Hold status (or a similar status depending on the TLD). In this status the domain can not be transferred to another registrar and the domain will not resolve (as the nameserver entries are removed from the root nameservers).
During the grace period the domain may be renewed through us or transferred to another OpenSRS Reseller. If the domain is registered through another OpenSRS Reseller you can transfer the domain to us. Transferring the domain between OpenSRS Resellers will renew the domain.
The specific grace period depends on the TLD of the domain. You can view our Domain Information Chart for more information on grace periods by TLD.
Once the domain has been renewed the nameserver entries are restored to the root servers, but this change may take up to 48 hours to complete and propagate.
If a domain is not renewed within the grace period (or the domain does not have a grace period) the domain will enter into what is known as the Redemption Period (if the registry has one) or the Pending Deletion state.
For the purposes of domains registered through us these are the same. We can/will not redeem/restore domains once they are in this state due to the high cost (both in fees and effort). The length of these periods varies between TLDs. You can view our Domain Information Chart for more information on redemption periods by TLD.
Also during this period, registrants may perform tests on the marketability of an expiring domain. This practice is called "domain tasting" and typically includes determining the value of a domain name through old links, search queries, and typos. If a domain shows high value, it may be purchased by a snap service (described below).
The Pending Delete period typically lasts from 1 to 7 days for all domains.
At the end of the Pending Delete stage the domain is deleted and made available for registration to the general public.
However, and this is a big "however", if somebody has "back ordered" the domain through one of the snap registrars they will typically get first crack at the domain. There are also snap registrars that watch the registry for pending deletions, and auto-register expired domains. They put an advertisement or parking page on the domain and wait for visitors; if the domain receives enough hits, or determines enough hits are coming from a single IP address (such as an owner viewing his or her previously-owned domain), they keep the registration and try to resell it to the old owner. If the domain doesn't receive enough hits, they have it refunded by the registry within the first five days. This is known as domain tasting, and is an extremely common practice.
If you allow your domain to expire, you have ZERO assurance of getting that domain back.