Let's say that there is a high demand for electric generators after a hurricane. You "borrow" as many generators from out of state friends as you can, and proceed to sell them at a premium (let's say $1500 each). After some time passes you find them on sale at Home Depot for $500. You buy enough of them to return to everyone you originally borrowed from, making a tidy profit in the process.
To answer the question more directly, short sellers borrow stocks from other stockholders. And, yes, the people lending the stocks are hoping for the stocks' success.
Are you also from Houston?