Penny auction sites work by selling penny bids (for more than a penny). So while you do bid a penny at a time (in that the price of the item only goes up a penny at a time, except in the case of some international bids), you're really paying 30 cents to a dollar for each bid that you place. The majority of penny auction sites charge around 60 cents to 75 cents for each bid.
Even with these charges, penny auction sites are still popular. Many people are able to get great deals on high ticket items. However, some people have complained that they spent a lot of money and didn't get anything to show for it, that they didn't ever receive the items that they purchased, or that the site led them to believe that they were a winner when they in fact were not. These sites make their money on the bids from people who don't win, so keep that in mind when you are paying for bids.
Penny auctions can provide great deals, but it's very important that you understand exactly what you're doing and getting when you participate in them. You need to fully understand the rules of the site and develop a good strategy in order to be successful. Your best bet is to wait until items are at a price that similar items have sold for and then begin to bid. If you can place these bids at a time when fewer people are online, you'll increase your chances even more. Some of the best times are Tuesday nights and Monday and Saturday mornings. Most days at 2-3 am are also good. Most people are asleep or busy at these times, so you'll have less competition. The majority of sites will let you view closed auctions as well, which can help you get an idea of the average price items go for.
Don't be afraid to try penny auction sites. Just do your research and develop a game plan, and you may be able to score some great deals for yourself or to sell on eBay!
More strategies for getting eBay inventory online:
Flipping eBay listings (finding misspellings)
Daily Deal Sites
Information - Selling Public Domain Info Products