Totally love this film, although I think it's a bit more complicated then in the link above.
It's about a parallel, or bubble, universe that is created as a result of the jet engine that falls out of the sky, or rather its caused by creepy rabbit luring Donnie out of bed, where the engine would have landed, creating the tangent universe as Donnie is alive, and not dead like he should have been.
The tangent universe has very specific rules. Firstly, it must be destroyed within 28 days, or it will destroy the primary universe. Secondly, there's no real free will, everybody in the parallel universe has a role, and some have powers to help them. Donnie's role is to destroy the tangent universe, and he has weird time travel powers to help. The roles of the people who died in the tangent universe (Frank aka creepy bunny and Gretchen, Donnie's girlfriend) are to assist him. The roles of everyone else are largely to stop him, to protect their own existence. This is why some of the characters behave as though they have inside knowledge.
Donnie ultimately succeeds, even though he comes to realise that it means sacrificing himself (when tangent universe catches up with the primary universe, he stays in bed and the engine kills him). I've since read that he shouts 'Deus Ex Machina' Latin for God from the Machine when he dies, but haven't re-watched it to check.
The brilliance of the film is that it took its own rules and main storyline, and cut it all out. None of the above is ever explained in the film. Some if it's alluded to, and the book given to Donnie, 'The Philosophy of Time Travel' by Grandma Death, is sometimes an extra on the DVDs and can be read. Cutting it gave the film its strange undertones, particularly memorable is the scene where Gretchen and Donnie's Mum wave to each other naturally and easily, and then both look confused, because in the primary universe they never actually met. As Donnie is also being treated for suspected schizophrenia, of course it could all be read as his delusions with just a random tragedy.
Sorry, bit long. Should've just linked to somewhere.