There are many different ways.
In the Final Fantasy games, they use polygonal meshes with transparency maps on them. If the hair is long, then usually some joints are added, and are animated by hand.
In the pre-rendered and movies, they also use polygonal meshes, but drive the shape by either cloth simulation, or through dynamic curves.
I use Shave and a Haircut. It looks pretty, but I find it kind of challenging to create styles with it that keep their shape when using dynamics.
So. You're left with a few options.
1) Model the hair, and use joints for the movement.
2) Model the hair, then use cloth simulation or dynamic curves
3) Use a hair solution
I think the one with the most control, would be the first option. However, animating hair can be time consuming. If you're good with simulations, you should go with the second option. If you're doing a still, or your character has short hair, use option three.
Imagination is more important than knowledge.