Scheme: Procedures that return another inner procedure

This is from the SICP book that I am sure many of you are familiar with. This is an early example in the book, but I feel an extremely important concept that I am just not able to get my head around yet. Here it is:

(define (cons x y)
 (define (dispatch m)
   (cond ((= m 0) x)
         ((= m 1) y)
         (else (error "Argument not 0 or 1 - CONS" m))))
 dispatch)
(define (car z) (z 0))
(define (cdr z) (z 1))

So here I understand that car and cdr are being defined within the scope of cons, and I get that they map some argument z to 1 and 0 respectively (argument z being some cons). But say I call (cons 3 4)...how are the arguments 3 and 4 evaluated, when we immediately go into this inner-procedure dispatch which takes some argument m that we have not specified yet? And, maybe more importantly, what is the point of returning 'dispatch? I don't really get that part at all. Any help is appreciated, thanks!