How does melatonin affect sleep?

Sleep signal: Melatonin is the hormone that tells the rest of the brain it's time to wind things up. Released by the pineal gland and controlled by the scn (the body clock), melatonin is released as the light begins to dim, telling the body to wind down, and begin preparing for sleep. In animals alterations in melatonin secretion signal hibernation, weight gain, fur changes, etc.

One theory: Last response was outstanding. Melatonin is hypothesized to work by regulating the sleep/wake rhythm (by acting on melatonin receptors in the hypothalamus. http://www.ncbi.nlm.nih.gov/pubmed/19326288.