A Simple Model of Strategic Interaction:  The Prisoner's Dilemma

Two suspects are apprehended by the cops and are being held in separate rooms. Each has a choice: keep quiet and hope the other guy does the same, or rat out the other guy and avoid going to jail.
 
Strategy Prisoner 2 stays quiet Prisoner 2 rats out #1
Prisoner 1 stays quiet. Both get light sentences. #2 gets off; #1 goes to jail.
Prisoner 1 rats out #2 #1 gets off; #2 goes to jail. Both get hard time.

A Payoff Matrix
 
Strategy 2 - Cooperate 2 - Defect
1 - Cooperate 1: gain $1 
2: gain $1		 1: lose $5 
2: gain $5
1 - Defect 1: gain $5 
2: lose $5		 1: lose $5 
2: lose $5
The Rules:

1) One round is played. 
2) No communication.

Questions to Consider

What happens when there are multiple iterations?

What happens if players are allowed to communicate?

What happens if players' actions can change the payoff matrix on the next iteration?