Stars seem to twinkle because of our atmosphere. Air can refract light just as a lens does, although the effect is tiny in comparison.
However, the air is constantly moving. There are winds, currents of hot air rising, eddies, turbulence, constant movement and change. Therefore the extent to which light passing through it is affected is constantly changing. Hence, stars seem to twinkle slightly.
Stars seem to twinkle much more when they are low down near the horizon. This is because you are looking along the ground and hence through many more miles of atmosphere than if you were looking up, so the effect is much more noticeable. The diagram below illustrates this point:
When a bright star is near the horizon, it can be seen flashing many different colours. This happens because the normal "white light" we see from the Sun and stars actually consists of a whole spectrum of different colours. When the eye sees them all together, it interprets it as white. However, each of those colours of light will be refracted by a slightly different amount by the air it passes through.
So, if you look at a white star through a thick enough layer of air, some of the colours will be refracted slightly away from your line of sight, and the apparent colour of the star will be different from if it was seen overhead.
However, since the atmosphere is constantly changing, exactly which colours are refracted away from your line of sight and which aren't will be changing from second to second, so the colour that the star appears to be will be constantly changing.
URL: http://www.randomnotes.co.uk/Astronomy/Twinkleprint.htm