Well, this is it !
It all starts when the spores are released from the gills (or which ever surface the mushroom happens to carry the spores on).
Millions of spores are released to the elements, (air, water or animals) and are dispersed by varying methods, (depending on the kind of mushroom), when the conditions are right the spores germinate sending out tiny threads called the hyphae (single hypha). In order for a hypha to develop and eventually produce a mushroom it has to find another hypha which is compatible with it, to simplify this I have refered to the spores in the diagram as '+' and '-'. When these two compatible hyphae meet, they fuse together to form a network of threads called the mycelium. The mycelium eventually forms what is known as a hyphal knot which grows and develops into a pinhead. In turn the pinhead gradually grows and develops into the full mushroom fruit body ready to disperse new spores!