This is a very big question.
Basically you are correct that with a dual-core CPU only two threads can be currently executing. However, more threads than two are actually scheduled to execute. Furthermore, a running thread can be interrupted at (almost) any time by the operating system, effectively halting execution of that thread to allow another thread to be run.
There are a lot of factors that weigh into how threads are interrupted and run. Each thread has a given "time-slice" in which to execute and after that time-slice has elapsed that thread may be stopped to allow other threads to execute (if any are waiting). There are also thread priorities that can be assigned that allow for higher priority tasks to take precedence over lower priority tasks.
Some work that can be offloaded from the main CPU (to the GPU or to a disk controller) can also be run in parallel with other threads.
Suggest that you read up on the basics.
