First you must understand that chocolate grows on trees. Chocolate is made from cocoa beans. These beans are the seeds of the cacao, or cocoa, tree.
Chocolate is made by drying and roasting the cocoa beans. The beans are ground and then crushed to release a liquid known as chocolate liquor. This bitter-tasting liquid contains a fat called cocoa butter. Cocoa butter is what makes chocolate so creamy and delicious.
To make powdered cocoa, most of the cocoa butter is squeezed from the unsweetened chocolate liquid. The hard, dry cakes left behind are ground into a fine powder. When mixed with sugar, this powder can be used to make that hot cocoa you drink on a cold day.