mcurving got most of this correct. Most large registrars will auto renew the domain on behalf of their customers as a "service." this gives you time to notice no email coming in and your domain/website not working. Most will allow you to renew for the regular renewal fee while others will up charge for the renewal. Then, if it doesn't get renewed, the registrar will auction the domain name if of high worth (links coming in, traffic, etc.). It then goes to the highest bidder. If no one bids, it gets deleted. Note: some registrars do not auction (very few).

I plan to update the article on DomainSherpa (http://doms.to/vra) soon with this information.