Good question - I asked somebody the same thing. Apparently it does go on all the time, but only by big secure institutions in big deals, involving substantial sums and substantial risk (eg default risk). It's not something that you or I could do down the high street.
You or I can't actually do short selling as we don't have the financial clout needed but we can get exposure to a short position by using spread betting. Effectively the spread betting company takes a short position for you (although in practice this will often be matched with a corresponding "long" bet rather than in the market).
shorting example this link shows an interesting form of shorting where the borrower (Opes Prime) took ownership of shares (with a promise to pay back) and then sold the shares, effectively shorting http://www.theaustralian.news.com.au/story/0,25197,23326088-16941,00.html there are also other interesting points to this saga, Opes Prime is now in liquidation, its margin lending clients are now seeing red & ANZ (Opes Prime's banker) temporarily became a significant shareholder in numerous small cap companies
