Here's how Anderson explains ground effect in his book "Introduction to Flight":

"When an airplane is flying close to the ground, the strength of the wing tip vortices is somewhat diminished because of the interaction with the ground. Since these tip vortices induce downwash at the wing, which in turn generates induced drag, the downwash and hence induced drag are reduced when the airplane is flying close to the ground. "

Picture a plane flying towards you. You'll "see" a vortex on each wing tip causing air to flow down and away from the bottom surface, around the tip, and back down towards the top surface. This flow causes a net downwards flow on the wing. This is the downwash that Anderson is talking about. It deflects the relative flow over the wing in a downwards direction. Now picture a side view of the airplane. The downwash caused by the vortices causes the wing to fly along at a lower angle of attack. To compensate for this, you need to increase the angle of attack of your wing to make up for the AOA lost to downwash. Increased AOA means more lift, but also means more drag... induced drag. When you're near the ground the vortices can't create this downwash, and the effect disappears.

Anderson also includes a handy formula for calculating the effect of ground effect on induced drag.

I=((16*h/b)^2 ) / (1+(16*h/b)^2)
where h is your height above ground, and b is your wingspan. This formula should give you a number between 0 and 1. For example, if your 6in. off the ground with a 4 ft wingspan, I=0.8. In other words, the induced drag created by the aircraft will only be 80% of what it is when you're at altitude. You can see how this effect depends on how many "wingspans" above the ground you are. Which is why aircraft with really long wingspans are affected by ground effect much more..

I hope I haven't confused you more

Tom

(BTW... I highly recommend "Introduction to Flight" by John Anderson to anyone interested in a better understanding of airplane aerodynamics. It's very easy to read... not much math, and is full of historical tid bits.)