All the bones in our body are held to each other by connective tissues and ligaments. These joints contain a thick, clear synovial fluid.
When we bend our fingers back, the bones of the joint tries to pull apart. So the connective liquid that is around the joints stretches. Stretching in turn increases the volume. With an increase in volume, the pressure of the fluid drops. Gas molecules that are dissolved in the liquid become less soluble and start to form bubbles by a process named cavitation. When the joint is further stretched, the pressure drops so low that the bubbles start to burst. This bursting produces the crack sound associated with knuckle cracking.
Once the sound is produced, it takes another 25 to 30 minutes for the gas to redissolve into the joint fluid. At this time, the knuckles won't crack. Once the gas is redissolved, cavitation is once again possible, and you can start popping your knuckles again.
Repeated stretching of the ligaments surrounding the joints causes a decrease in grip strength. On the other hand, it is said to stimulate the set of nerve endings involved in motion sensing and relaxation of muscles around the joints.