A Stirling engine is a heat engine operating by cyclic compression and expansion of air or other gas, the working fluid, at different temperature levels such that there is a net conversion of heat energy to mechanical work. Or more specifically, a closed-cycle regenerative heat engine with a permanently gaseous working fluid, where closed-cycle is defined as a thermodynamic system in which the working fluid is permanently contained within the system, and regenerative describes the use of a specific type of internal heat exchanger and thermal store, known as the regenerator. It is the inclusion of a regenerator that differentiates the Stirling engine from other closed cycle hot air engines.

The Stirling engine is noted for its high efficiency compared to steam engines, quiet operation, and the ease with which it can use almost any heat source. This compatibility with alternative and renewable energy sources has become increasingly significant as the price of conventional fuels rises, and also in light of concerns such as peak oil and climate change. This engine is currently exciting interest as the core component of micro combined heat and power (CHP) units, in which it is more efficient and safer than a comparable steam engine.

And how Stirling engine works, a Stirling engine uses the Stirling cycle,­ which is unlike the cycles used in internal-combustion engines.The gasses used inside a Stirling engine never leave the engine. There are no exhaust valves that vent high-pressure gasses, as in a gasoline or diesel engine, and there are no explosions taking place. Because of this, Stirling engines are very quiet. The Stirling cycle uses an external heat source, which could be anything from gasoline to solar energy to the heat produced by decaying plants. No combustion takes place inside the cylinders of the engine.

Why Aren’t Stirling Engines More Common?

There are a couple of key characteristics that make Stirling engines impractical for use in many applications, including in most cars and trucks.
Because the heat source is external, it takes a little while for the engine to respond to changes in the amount of heat being applied to the cylinder — it takes time for the heat to be conducted through the cylinder walls and into the gas inside the engine. This means that:
The engine requires some time to warm up before it can produce useful power.
The engine can not change its power output quickly.
These shortcomings all but guarantee that it won’t replace the internal-combustion engine in cars. However, a Stirling-engine-powered hybrid car might be feasible.

Reference:

How Stirling Engines Work by Karim Nice http://auto.howstuffworks.com/stirling-engine.htm

Stirling engine From Wikipedia http://en.wikipedia.org/wiki/Stirling_engine

Animated Engines http://www.animatedengines.com/vstirling.html

http://www.dekaresearch.com/stirling.shtml