My undergraduate degree was in psychology and I can tell you that your question is deceptively difficult. Definitions are not easy. But if I had to come up with a succinct definition for psychology, I would say that psychology is the study of the human mind, mental processes, human development, and behavior. I know that this definition is broad, but we need to realize that the study of psychology is broad as well.
Now in terms of how our minds works, this is a really difficult question and in the end there is no right answer. It all depends on your perspective. In light of this, let me say that our minds are a function of our society. In other words, the society in which we live shapes the way we view the world and it shapes our opinions. This is why when a person moves from one place to another, it can seem so foreign. A new society has new ways of thinking. Since your question is also tagged with social sciences, read the link below. It is the thoughts of Peter Berger, one of the great social scientists of our age.