A new wireless technology which enables vehicles to communicate with each other is being developed and is referred as Vehicular Ad hoc Networks (VANETs). These could enable a number of innovative schemes to reduce traffic congestion and greenhouse gas emissions. VANETs are exceptional kind of Mobile Ad hoc Networks (MANETs). Individual vehicles act as nodes in VANETs. Messages are passed by multi-hop communication in VANETs. Mostly VANETs make use of Wi-Fi for communication although cellular and satellite are also being looked at for communications. Because of high mobility speed of nodes in VANETs which can range up to 240 km/hour, VANETs use special Wi-Fi protocol IEEE 802.11p. VANETs are not true MANETs as they rely on some kind of infrastructure. The infrastructure comprises of Road Side Units (RSUs) which is responsible for connecting the network to the internet and databases containing traffic information and help overcome network partitions. Vehicles in VANETs can have relatively predictable mobility if they stick to roads, obey speed limits, stop at traffic lights etc. In this research paper, the central theme is analyzing the working of VANETs, routing protocols involved in VANETs and discussing challenges faced by VANETs