Market makers quote both sides of a stock and profit on the spread. On thinly traded penny stocks a small number of them can shape the whole order book.
A market maker is a firm that stands ready to both buy and sell a given stock, quoting a bid and an ask continuously through the session. Their function is liquidity: without someone willing to take the other side, your order simply waits until a matching investor appears.
On the spread. A firm quoting a bid of 1.00 and an ask of 1.05 buys from sellers at 1.00 and sells to buyers at 1.05, capturing the difference. Repeat that across enough volume and the five cents is the business. They are not predicting direction; they are being paid to be available, and they manage the inventory risk that comes with it.
Not every MPID on a Level II screen is a market maker:
A megacap has dozens of firms competing, which grinds the spread to a cent. A thinly traded penny stock may have only a handful, and correspondingly wide spreads — that is a structural consequence of low volume, not evidence of anything improper.
It is worth being clear about this, because market makers attract a great deal of folklore in penny stock forums. Much of what gets attributed to a market maker — a bid that keeps reappearing, sudden pressure at a round number — is ordinary inventory management, or someone else entirely: a converting noteholder under a toxic financing arrangement selling steadily into the market will produce exactly that pattern. The filings usually explain more than the order book does.
Trading guides on StockMarketWatch — the same material for large caps, with live data attached.