Whether you have a full head of curly blond hair or a nearly bald head with dark hair, the growth of your hair begins in the skin on your scalp.
On the surface of your head, the outer layer of cells--called the epidermis--is between ten and twenty layers thick. Some of these epidermal cells actually become hair cells by a complex process.
To visualize this process, think about taking some plastic kitchen wrap and covering a tub of cream cheese with it. If you poked your finger into the wrap, and down into the cream cheese without breaking the wrap, you would be simulating the beginning of hair development.
In order for a strand of hair to grow, skin cells must dive down to just below the epidermis. This creates a tube-like structure, much like the one left over if you pulled your finger out of the cream cheese.
The cells that line this tubular structure are collectively referred to as the hair follicle. Hair production is the result of the cells of the hair follicle depositing layer after layer of protein into this tubular space.
These layers of protein grow out of the tubular space as a strand of hair.
As the hair strand develops, hundreds of pigment-producing cells called melanocytes inject it with pigment, giving a strand of hair its color.
Melanocytes are only able to produce pigment for a genetically-determined number of years. Once the melanocytes lose their ability to produce pigment, hair follicles continue to produce hair, but instead of brown or red hair, they produce gray hair, which, technically speaking, is hair with no color at all.