My new favorite, completely grammatical sentence is "Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo." Let me break it down for you- a similar sentence would be something like "The tiny animals that tigers eat often eat other tiny animals." American bison from Buffalo, New York can be called “Buffalo buffalo.” (adjective, noun) So, replacing every noun (and adjective) in the sentence with “Buffalo buffalo,” then “The Buffalo buffalo that Buffalo buffalo eat often eat other Buffalo buffalo.” Now, “buffalo” can also be a verb (“to overwhelm, to intimidate”). So, replacing the verbs with buffalo, “The Buffalo buffalo that Buffalo buffalo buffalo often buffalo other Buffalo buffalo.” Now, removing unnecessary words (like in “Tiny animals tigers eat eat tiny animals”) we have “Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo.”
For more amusing language tricks, consult “The Language Instinct,” by Steven Pinker.