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Derek Johnson from tatango.com explains how text message donations work through two methods: mobile phone billing and credit card processing. The mobile phone billing method allows users to donate by texting a keyword to a short code (e.g., "give" to 12345), with the donation amount added to their mobile phone bill. This method is convenient as it doesn't require credit card information, but wireless carriers take a percentage of the donations, and eligibility is limited to 501(c)(3) non-profits that meet specific thresholds. The alternative method involves processing donations through a consumer's credit card. Both options serve different needs based on ease of use and donor preferences.