So is a decompiler really a thing that gives gives the source of a compiled/interpreted piece of code? Because to me that sounds impossible. How would you get the names of the functions, variables, classes, etc if it is compiled. Or am I misinterpreting the definition? How does it work? And what is the general principal behind making one?
You're right about your definition of a decompiler: it takes a compiled application and produces source code to match. However, it does not in most cases know the name and structure of variables/functions/classes--it just guesses. It analyzes the flow of the program and tries to find a way to represent that flow through a certain programming language, typically C. However, because the programming language of choice (C, in this example) is often at a higher level than the state of the underlying program (a binary executable), some parts of the program might be impossible to represent accurately; in this case, the decompiler would fail and you would need to use a disassembler. This is why many people like to obfuscate their code: it makes it much harder for decompilers to open it.
Building a decompiler is not a simple task. Basically, you have to take the application that you are decompiling (be it an executable or some other form of compiled application) and parse it into some kind of tree you can work with in memory. You would then analyze the flow of the program and try to find patters that might suggest that an if statement/variable/function/etc was used in a certain location in the code. It's all really just a guessing game: you'd have to know the patterns that the compiler makes in compiled code, then search for those patterns and replace them with equivalent human-readable source code.
This is all much simpler for higher-level programs like Java or .NET, where you don't have to deal with assembly instructions, and things like variables are mostly taken care of for you. There, you don't have to guess as much as just directly translate. You might not have exact variable/method names, but you can at least deduce the program structure fairly easily.
Disclaimer: I have never written a decompiler and thus don't know every detail of what I'm talking about. If you are really interested in writing a decompiler, you should get a book on the topic.