You may not know or care anything about bicycles, but chances are at some point you will be involved in the purchase of one. When this happens, all you really need to remember is the cardinal rule of bike purchasing: don't buy a bike at a department store.
Why is this rule so important? Don't department stores have the best prices? Why shouldn't I be able to buy my kid a bike and stock up on closet organizers and shaving cream all in one trip?!
The truth is, department stores sell a lot of bikes based on the factors of price and convenience, both of which are very popular with consumers. But in order to achieve these characteristics they sacrifice in other easily overlooked yet more important areas such as quality and service.
Materials
The modern bicycle is the deceptively elegant product of a hundred years of engineering. Because a bike is human-powered, it should be as light as possible, and because it can travel at relatively high speeds, it needs to be strong. These two needs have spurred the development of frames made from various steel and aluminum alloys. Unfortunately, if you're trying to sell a 'mountain bike' for $80, downgrading the materials is the quickest and least apparent way to cut costs.
The result is that department store bikes end up with the worst of both worlds, they are heavy and fragile. The wheel rims, shifting and brake components, and even the frames bend extremely easily despite tipping the scales at well over 30 pounds (that's heavy for a mountain bike).
Engineering
Bicycle technology over the past 20 years has evolved by leaps and bounds in all areas. The trickle down effect means that the cheapest bikes today feature the cutting edge technology of just a few years ago. But don't be fooled, though these bargain-basement bikes appear the have all the bells and whistles of bikes costing 10 times as much, the sad truth is that poor imitation has sucked all the value out of the so-called features on many of these cheap bikes. It's easy to see why; with the prices they're charging they can't afford a real engineering team. I wouldn't be surprised if it's all done by interns tracing quality parts and faxing them to China for immediate approximation.
An example of this is a full-suspension bike I saw a few years ago, where the rear shock was not even lined up with the pivot point. In other words, the shock could not compress without the frame bending. This was probably a good thing though, because there was no damping on it either, just a spring. Have you ever seen a car riding on raw springs? It certainly does not absorb shocks, and neither would this bike if you weighed enough to actually move the suspension.
Workmanship
As if cutting engineering out the equation isn't bad enough, then they throw in low tolerances on their manufacturing processes. In effect, every department store bike you buy has the chance of containing a component which needs physical modification in order to adjust properly. Unless you are an expert bike mechanic, you probably won't have any idea what's wrong or how to fix it.
Even if everything works, things can get out of whack surprisingly quickly. This fact is hidden by the infrequency with which most people ride their bikes. In effect these companies count on it being cheaper to buy a new bike than to service the original when things start to go seriously wrong.
Assembly
Bicycles come from the manufacturer partially assembled to fit in a reasonable size box. The builder puts on the front wheel, handlebars, seat, and then adjusts the brakes and derailleurs. While this is not particularly difficult, it is much harder when the components are built to such low tolerances. A professional mechanic ought to be able to do a reasonable job even under these circumstances, but you or the poor kid working at the department store will have a hell of a time getting it right. Poorly adjusted components are not only detrimental to your ride, but they can be downright dangerous.
Service
Bikes need regular service just like cars. When you buy a bike from a bike shop they will usually give you a free 30-day tune-up to make sure everything is adjusted properly after being broken in (cables stretch). Additionally, the sales people will usually be happy to explain the basic maintenance that needs to be done and even how to do much of it yourself. Although you may find yourself paying twice as much for a entry level bike at a shop, it can easily last 5 times as long (or longer) with minimum maintenance.
You can't get bike service at a department store, so you're going have to form a relationship with your local bike shop anyway. If you buy your bike there you will get better service not only because they like you more but because you have something that is infinitely more serviceable.
The Bottom Line
Fifty years ago bikes were built like bomb shelters. They weighed about a hundred pounds, but you could crash them into a brick wall. Like so much in our society today, bikes have been made disposable for the purpose of increased profitability. Fortunately there are still companies that believe that a bike should be made with a minimum standard for operability and durability, and thanks to informed consumers, your local bike shop is able to make a living selling these products. You really don't need to the know the reasons why as long as you remember that with very few exceptions a bike is quality if and only if it comes from a bike shop*.
*Or mail-order for the true techno-weenie.
N3Bruce adds: I have been a bicycle mechanic in both worlds, in a decent bike shop and for an assemby service company that serviced department stores. While some of the assembly service guys can do a decent job if given the chance, the sad truth is that they often work on commission (paid by the bike) and rush through the assembly, and work under often adverse conditions. Good bikes in these stores were few and far between, but were usually easier to assemble, with truer wheels, less stretchy cables, etc. On the worst, mostly Chinese/Taiwan/Korean imports, but also many Columbia and Murray models (mid 1980s), it was common to see peeling chrome, weld blobs in seat tubes, brake cables that would snap when pulled hard, and seatpost or handlebar bolts that would strip before they would be adequately tight.
lj asks: what about buying bicycles for children? They only need to last until they're outgrown, so surely the cheaper, the better?
Factoring the likelihood of some kids getting their bike stolen also tips the scales in favor of cheaper. I guess I could go either way on this one, it really depends on how much he/she enjoys biking, and how hard they ride. In my experience cheap BMX bikes seem to not suffer quite as much from the cheapness factor, but if the kid is serious about biking then it's probably worth the extra cash to get a higher quality bike (and get it set up right).