There's a nice summary of their research on the Nobel website (this is the summary of the summary - check the link for the full version):
The sense of smell long remained the most enigmatic of our senses. The basic principles for recognizing and remembering about 10,000 different odours were not understood. This year's Nobel Laureates in Physiology or Medicine have solved this problem and in a series of pioneering studies clarified how our olfactory system works. They discovered a large gene family, comprised of some 1,000 different genes (three per cent of our genes) that give rise to an equivalent number of olfactory receptor types. These receptors are located on the olfactory receptor cells, which occupy a small area in the upper part of the nasal epithelium and detect the inhaled odorant molecules.
Each olfactory receptor cell possesses only one type of odorant receptor, and each receptor can detect a limited number of odorant substances. Our olfactory receptor cells are therefore highly specialized for a few odours. The cells send thin nerve processes directly to distinct micro domains, glomeruli, in the olfactory bulb, the primary olfactory area of the brain. Receptor cells carrying the same type of receptor send their nerve processes to the same glomerulus. From these micro domains in the olfactory bulb the information is relayed further to other parts of the brain, where the information from several olfactory receptors is combined, forming a pattern. Therefore, we can consciously experience the smell of a lilac flower in the spring and recall this olfactory memory at other times.