It's a constitutional monarchy, not the absolute monarchy of old. In the latter case, the Monarch had unrestricted power to do as they pleased and claimed divine right (i.e. chosen by god).
The English Monarchy has been bound by constitution for centuries. The Queen is above politics - executive power of government is instilled in the elected parliament, and it firmly resides there.
So basically, the Queen is a little redundant in terms of power - she handles ceremonial occasions and foreign dignitories and is seen as the figurehead of the United Kingdom - basically something to pin our flag to.
The restrictions on the Monarchy were first set down in 1215 in the Magna Carta. Over the next 800 years, they gradually came to fruition (after some stops and starts, including the formation of short-lived republic after the English civil war), and are exceeded by today's modern democracy.
The system works well. I think since the reinstatement of the monarchy after the civil war, we've had several centuries of stability and internal peace, whilst maintaining a strong sense of personal freedom and liberty.
That's my uderstanding of things anyway. Hope that helps.