As in almost all religions, Mohammed was greatly revered by his followers. They wanted to live their life like he did. So when Mohammed was living, people noted and remembered what he did, and said. These stories and reports are called the Hadith (pronounced 'Hadees').
In most cases, the stories were true. There are reports of some hadith being fabricated (sites: *1, *2, *3) for political gain, but most hadith are true and believed by most Muslims. Some of them have been incorporated into Islamic laws (Shariah), such as cutting of hands, stoning to death, half inferitance and testimonial rights of women, violation of women's rights such as compulsory veiliing, ban on driving, requirement of 4 witnesses in event of a woman being raped, etc.

Once I was in a mosque, when I was a muslim, and they told me, that the 'sunnat' way of sleeping was on your right side. Similarly, other hadith tell us about ways to do other things in life. Most of them dont make sense and often preach wrong moral ideas. Some do, but again, the clever Mohammed included good things in Islam to catch people's attention. If Islam was 100% evil, it would not have so many followers as it does today. An example of hadith not making sense is rubbing ourselves with an odd number of stones after we've attended a nature call.

Hadith that make sense talk about being good to your neighbour (Do we need a prophet to tell us this?). Other sensible stuff in Hadith is derived from common sense and other religions.