How does an ālaya-vijñāna work?

As a major concept used in the Chinese Zen (Ch'an) tradition, the term alayavijnana also appears in the Platform Sutra in conjunction with the arising and functioning of one's self-nature. The alayavijnana functioning as right-wrong view is a governing principle over the 18 dhatus in three categories of manovijnana, manas and alayavijnana, functioning as wise or unwise reflection for the development of prajna (wisdpom). In terms of stress associated with wrong view of the six sensed objects, the six sense faculty bases and the six sense consciousnesses, the conditioned dispositions (mental, bodily and verbal) are presented to consciousness. As right-wrong views constitute wisdom of transcendence: the wise development of a whole (think yin-yang -Tao) which in correcting a wrong view suddenly leaves the mind free from it's object and it's sense base empty. The right-wrong construction requires the proper development of prajna to recognize the object and its comprehension as right view in the application of the four noble truths.
The term prajna is absent from the Lanka in which the alayavijnana first appears. Now, in the Platform Sutra, eliminating the deluded mind of self, ill- will in mind - and mental greed, in relation to the sensed object- all thought arises in relation and reference to the manovijnana, manas and alayavijnana, In terms of the four noble truths of suffering, the cause, its ending and the path leading to liberation; the Dhrmakaya, Nirminakaya and Sambhobakaya of the PS are capable of functioning as a recepticle of impressions within the physical body since everything dependently arisen is contained in one's own nature. The Dharmakaya, in the PS is accessible through the special feeling of in-out breathing. This methodology of cultivation leads to direct seeing that self nature is without error, in meditation and undisturbed.
Therefore the Platform Sutra's interpretation of the nature and function of the Alayavijnana is a clarification and reformulation of the Lanka's use of the alayavijnana for which no linguistic signs of words of letters are sacrificed on the alter of discrimination. The Buddha's message is not the elimination of discrimination by negating the referent of words, but to show that all words and phenomena are dependently arisen and dependently ceased because they only have provisional use due to their impermanence, unsatisfactoriness and no-self.

Currently I'm trying to read the "Stilling the Mind" by Alan Wallace. Although he tries to be detailed and didactic, it's very dense. In this book he translates and explains Dudjom Lingpa's Vajra Essence, from Dzogchen school.

If I understood correctly, he uses the expression substrate consciousness for alayavijnana, and he says that in Theravada it's called bhavanga. The five senses and the mind manifest in it. Dreams and after-death bardo also happens on alayavijnana, acording to Alan Wallace.

It isn't like a soul, but it is a continuum of consciousness. It gives the sense of continuity of time, and even after sleeping it allows us to feel this continuity.

And it isn't a self, which is disclaimed by vipassana. But it could be said that it is a self devoid of color, sound, smell, taste, shape or concepts. So it's not a common self.

I don't know if alayavijnana is permanent, but it lasts more than the phenomena of the five senses, the mind and the dreams. It seems that alayavijnana is the consciousness that enable the manifestation of phenomena, or that perceives them manifesting.

The Buddha himself said that he didn't want to talk about the alaya because people would confuse it for a permanent self. So the answer to your 2nd question is a clear and emphatic NO.

Let's honor his advice and not philosophize about it too much either because understanding and transforming the alaya (and the rest of the consciousness skandha) is the work of a bodhisattva who has mastered the jhanas and already attained Arhatship, something we are not at.

On the other hand... (from Wikipedia):

A similar perspective is give by Walpola Rahula. According to Walpola Rahula, all the elements of the Yogācāra storehouse-consciousness are already found in the Pāli Canon.[36] He writes that the three layers of the mind (citta, manas, and vijñana) as presented by Asaṅga are also mentioned in the Pāli Canon:

Thus we can see that 'Vijñāna' represents the simple reaction or response of the sense organs when they come in contact with external objects. This is the uppermost or superficial aspect or layer of the 'Vijñāna-skandha'. 'Manas' represents the aspect of its mental functioning, thinking, reasoning, conceiving ideas, etc. 'Citta' which is here called 'Ālayavijñāna', represents the deepest, finest and subtlest aspect or layer of the Aggregate of consciousness. It contains all the traces or impressions of the past actions and all good and bad future possibilities.[37]

Anyway, go to page 217 of How to Measure and Deepen Your Spiritual Realization for the clearest account on Alaya that currently exists--at least one that I trust--since we are in the territory of Mind-Only after all... The book is a little expensive but worth it.

Below is a dump of that sub-chapter.

THE EIGHTH (ALAYA) CONSCIOUSNESS The seventh consciousness deposits its impressions on the eighth consciousness, or alaya, which, as we have seen, functions as the storehouse of all the residual impressions left by the functioning of the prior seven consciousnesses. The alaya does no real judging on its own. Instead, it serves as the neutral storehouse of all the ìseedsî or germs of everything within the Three Realms, including all our ideas and the impressions we experience. This is why it is often called the ìstorehouse of our seeds of experience.î It is also sometimes called the ìreceptacle consciousnessî due to the fact that these seeds lie within it. Since the intermingling of the seeds produces our karma, which is the retribution of actions we commit in either this life or from previous lives, it is also at times called the ìretribution consciousness.î All the consciousnesses have various names, and these are just a few that we have for the alaya. Asanga said, ìthe objective world and the subjective ego are only manifestations of the universal consciousness [alaya],î which helps us further understand its great functioning. Since the fruits or phenomena which evolve from it mature at varying times and in varying categories, it is also called the ìvarying maturing consciousness.î The universal ground of the alaya is a neutral state, like a mirror which simply reflects things but whose images are neither good nor bad in themselves. The alaya consciousness is omnipresent, but if it were not for the functioning of the other seven consciousnesses, it would not create good and bad karma or interact with phenomena. Therefore it is described as ìnonrevolving and indefinite.î In the novel The Journey to the West, the fact that the monk Xuan Zang always seemed so useless was because he represented this ìnonrevolvingî eighth consciousness which is ineffective by itself. In the story, the monk always had to rely on the efforts of the monkey Sun Wu-kung to get anything done because the monkey represented the actionable working mind or sixth consciousness. In describing how consciousness works, it is easiest to say that the seeds within the alaya ìsurfaceî and are engendered: when conditions are proper, seeds that are normally covered sprout so as to give rise to the corresponding experiences. Thus, it is the alaya consciousness that ultimately gives birth to the manifestation of phenomenal states, and this happens when the proper conditions come together so that relevant experiences and circumstances can manifest. In other words, the seeds within the alaya are always being ìperfumedî (cross-pollinated, or cross-fertilized) by the first seven consciousnesses. Furthermore, the seeds within it are always being influenced by each other because of mutual interaction. This is the process of ceaseless, subtle transformation that defines the alayaís workings, and the subtle nature of this transformation is the reason that no super-computer could ever perfectly predict the karma determined by the alaya. Nevertheless, through this process of turning, perfuming or transforming, our karma is always being determined, and sometimes this karma can be foreknown. As a side note, this is also the key for how you can change or defer unfortunate karma that is due. Simply prevent the necessary contributing circumstances from transpiring, and then the environment that would produce bad fortune will not occur. Rather, it will have to wait for another time to manifest when all the proper conditions come together. When you become enlightened, you will even learn how to change your karma rather than defer it. You will also become able to understand the eventual karmic results of all deeds, as well as see the prior acts responsible for someoneís current karmic conditions. While the various seeds within the alaya are engendered to affect the various consciousnesses and bring about experiential realms, we must remember that the consciousnesses simultaneously perfume the seeds, so they become in their turn causes which perfume and mature seeds, and which thereby in turn produce further seeds of experience. The seeds, the consciousnesses that perfume them, and the seeds subsequently engendered by this perfuming revolve in a cycle, simultaneously and reciprocally acting as cause and effect. This is the perfuming of subtle transformation, a process of interconnected seeds rushing onwards as a torrential whole whose miraculous movements can never be stopped. Mind will always be, and the material world will always be, and there is no possible stopping of either. This is why you must learn detachment, and how to skillfully master these processes. This is a very deep and complicated topic. It is so profound that it is very easy to take it the wrong way. The Dharma master Xuan Zang tried to summarize these principles by saying, a seed produces a manifestation, and a manifestation perfumes a seed (simultaneously acts as a cause and effect). The seeds, the manifestation and perfuming turn on and on, functioning at one and the same time as cause and effect. ... Consciousness, from beginningless time, is born and perishes again from moment to moment, ever successively changing. As cause it perishes and as fruit it is born again. Through the evolution of the other consciousnesses the alaya is perfumed and forms seeds (of future experience). Its sequence of cause and effect is like a rushing torrent which flows ever onward in sequence, carrying with it [seeds which] sometimes float and sometimes sink [assume greater or lesser roles of activity and passivity]. Thus, there is the successive sequence from beginninglessness of being born and perishing, so that there is neither permanence nor impermanence. When you finally become a Buddha through your cultivation efforts, all the seeds of your alaya consciousness will have been transformed to become pure virtue. Your stream of mind events and behavior will have all assumed a virtuous character that is unimaginable. When you reach the realm of the alaya consciousness through spiritual cultivation and transform it into a purified, cleansed consciousness, then you can completely ìilluminate mind and see the true nature.î This is when you can transform it back into its original inherent identity as the matrix womb of the Buddhas. This is sort of like flipping any yin aspect of the alaya into a yang aspect entirely. When you do this we can call the alaya consciousness the ìenlightenment Tathagata Storehouse,î but before this achievement it is simply called the alaya or eighth consciousness. Before becoming a fully enlightened Buddha, the three kinds of seeds that are necessary for attaining self-realization remain inactive. They are there, but you never activate them because you do not cultivate the conditions that lead to their germination. In other words, you do not put in the required efforts of spiritual cultivation, so the fruitional results of these seeds do not manifest, but remain covered. All beings naturally possess these three seeds, but they are not engendered until they are activated through spiritual striving. These three seeds include: (1) the seeds for reaching the Hearer state of attainment (sravaka), which is achieved through listening to the dharma (2) the seeds for reaching the pratyeka-buddha stage, which allow you to attain enlightenment without being taught (3) the seeds for reaching the Bodhisattva enlightenment, which allow you to enter the Mahayana path The alaya contains the seeds of all experiences, including the seeds of being attached to the physical body and sensations that are afflictive barriers to spiritual attainment. Thus, because of the seeds in the alaya, we all carry around the habit energy of five sources of error that are major barriers to cultivation progress, called the five fundamental dwellings: the love of views, love of desire, love of form, love of the formless, and love of ignorance. These dwellings of mind always cause affliction and suffering. Only when you reach the stage of a Buddha can you be free of these views and experience the immediate presence, or crystal clarity of nirvana. At this point of spiritual attainment you will have transformed all the consciousnesses into wisdom functionings. The alaya acts as a storehouse of the seeds of impressions, but when it is finally transformed into an enlightened Buddha mind, all things are manifestly reflected and can be seen as they really are; there is no intercession of thoughts or idealized images in the way. Thus, when someone empties the volition skandha and starts cultivating the pure aggregate of consciousness, they are at the very edge of enlightenment but not yet awakened to the great matter. At this point, a spiritual aspirant will be clear and illuminated both inside and out, and we say they will be able to ìenter without entering.î In other words, the six sense faculties will be empty and still, and they will no longer run off in disarray. This does not mean that the sense consciousnesses will not work anymore, rather it just means they will be clear no matter what they confront, and so they will function without any obstructions. At this point you will be able to perceive things whether the sense organs are operating or not, so you will no longer be subject to the limitations of the six sense faculties. In fact, at this stage of attainment you can use the eye to hear or nose to see since you have reached the root source of the six sense consciousnesses where they are still undifferentiated. The realm without entry is the impetus behind the famous spiritual cultivation method of Avalokiteshvara, which involves listening to sound to trace hearing back to its source. In this method, which was highly recommended for our world by the Buddha Manjusri, you return the function of the hearing-consciousness to the consciousness skandha, and then fathom the stillness or emptiness within to realize the self-nature and attain Tao. As Avalokiteshvara reported: I initially entered the stream of meditation through the sense of hearing, and thereby forgot the sound of what was heard. As a result, both sounds (disturbances) and silence (stillness) ceased to arise. Gradually advancing in this way, both hearing and what was heard both melted away and vanished, but I did not stop where they ended. When hearing and what was heard were both forgotten (became empty), there was nothing to rely upon because hearing left no impression in the mind. When a sense (like hearing) and the objects of sense both become empty (in this way), then emptiness and sense merge and reach a state of absolute perfection. When emptiness and what is being emptied are both extinguished (emptied or forgotten), then arising and extinction vanished. At this point the absolute emptiness of nirvana became manifest, and suddenly I transcended the mundane and supramundane worlds.4 Thus, it is said, ìEntering the stream, you forget about where you are, and the entry is already still.î It is also said, ìReturning the hearing, listen to your nature till the nature reaches the supreme way.î At this time you will be able to comprehend the source of all the beings throughout the entire universe, which means you will be able to ìobserve the origin.î Although people do not normally recognize it as such, the ability to perceive the fundamental nature face-to-face is actually the goal of modern science. But science goes about it in a way that will never succeed. Hopefully the time will come when scientists recognize that you do not have to perform investigations with external machines and instruments and mathematics to ìobserve the origin,î but you can investigate reality using spiritual prajna and samadhi. When you arrive at the skandha of consciousness because you have liberated yourself from false thoughts, you are almost free of the world of defilements, though you have not finished with it completely. Only when you finally free yourself from the aggregate of consciousness can you reach complete self-realization. In other words, enlightenment can be partial or complete, and partial enlightenment has its own various stages (or bhumis). Upon enlightenment a practitionerís mind and body, together with the entire universe, become fused into one, and this whole seems illumined all the way through like a crystal clear sphere suffused with light and absent of any obstructions. This is pure, true wondrous illumination, the perfect purity of fundamental enlightenment. When the Bible says God is light, it is referring to this state of empty, infinite, omniscient clarity presence rather than physical light. It is actually a state of perfect clarity, but the Tibetans sometimes call this ìluminosityî or ìilluminationî for lack of better terms. They also call it the ìclear light,î which refers to the primordial knowing wisdom awareness that is unborn and unconstructed. All the spiritual schools have trouble describing this, so there are many different terms. This is the thing that is inherent in life; this is what is real. Go East or West and it is still there, be born into any religion and it is still the same. Phenomena change but this never changes; it is always still there, always constant. We say this fundamental nature is empty, but it is also wondrous existence. This is why we call it the dharmadhatu (the Realm of Reality), Tathagata (Thus Come One), tathagatagarbha (Womb of the Tathagatas), True Thusness and so on besides True Suchness, or Emptiness. When you reach this point of self-realization, you are free from reckoning by form, sensation, cognition, volition and consciousness and have thus cut off all the skandhas at the root. This is why you can see the karma of all beings in every direction, for you can understand the totality of empty but interdependent origination. This stage of attainment is the hardest to describe, for words fail when talking of self-realization. Since it is beyond the five skandhas and has the capacity of wisdom awareness or direct knowing, we just refer to it as true mind. When through using your mind you can bring an entire galaxy to the palm of your hand for all to see, as seen in the Vimalakirti Nirdesa Sutra, we are beginning to talk a little of the abilities of true mind. However, to exercise such functioning also requires great merit. As a lama once remarked to the Tibetan Master Gampopa, ìA Bodhisattva can demonstrate miraculous powers by placing multiple galaxies into the smallest particle of dust. The dust particle does not grow bigger, and the galaxies do not grow smaller, yet the one can fit into the other. How amazing!î Gampopa replied, ìThis is simply the nature of phenomena, wherein almost anything can be achieved. The eyes of human beings can see the whole of a face; a four inch mirror can capture horses and elephants; a small bowl of water can reflect the entire moon.î Gampopa, after saying this, then transformed himself into a figure as large as a mountain, yet he still fit into a room that could only hold several people. The room did not grow larger, and neither did Gampopaís body grow smaller. This was an exhibition of the functioning of the capabilities of true mind, and since this demonstrative ability lies outside the realm of the five skandhas, we can truly call this ability ìgreat merit.î If people want to evaluate such matters in more detail, they must cultivate to reach some stage of attainment in order to gain the appropriate understanding. They would also make headway if they studied the prajna teachings of the Madhyamika, the Mind-only teachings of Yogacara, and if they became familiar with the Surangama Sutra, the Lankavatara Sutra, the Prajnaparamitra Sutras, the Flower Adornment Sutra, the Sutra of Queen Srimala, and the Buddha Maitreyaís various wisdom sastras which were transmitted by Asanga. Why are prajna transcendental wisdom teachings so important on this particular journey? Because prajna is that which enables you to understand the Tao, and properly cultivate the spiritual path. Prajna transcendental wisdom is not ordinary human intelligence, because intelligence is conceptual in nature and limited to your previous knowledge, experience, feelings and images. The true dharmakaya, on the other hand, is inconceivable; only prajna transcendental wisdom can lead you to its very borders. Prajna wisdom is beyond common intelligence and wisdom because it can lead you to comprehend the essence and origin of lifeóour original, fundamental nature. Naturally intellectual study or conception or cognition cannot possibly achieve this end result because wisdom is only realized through the nonconceptual state, which is not, by the way, like a blank state of stupor or oblivion. The nonconceptual state can be likened to the surface of a calm, still lake wherein the stars and trees and sky are perfectly reflectedóin clarity and distinctnessó because the lake has no concept of itself to interfere with the reflection. It has no flaws or imperfections, and it does not function with any degree of attachment. Therefore the reflections appear naturally as they really are, without any bias or distortion. Prajna is the awareness direct knowing nature that sees things as they really are. You only achieve the great prajna wisdom through completely engaging in the proper process of spiritual cultivation. Because of this effort of spiritual cultivation, at the moment of enlightenment, your own treasury of wisdom opens up. We say it ìexplodes forth,î but all such words fail because this is something inexpressible that cannot be explained. For instance, it does not come forth through mental effort. Rather, it comes naturallyóit just ìflowsîóyet you have to cultivate to reach this experience of awakening. It is so important that it is the only thing worthwhile in the universe. Your purpose in cultivating is to know it and experience it, and you tread the path of spiritual cultivation to get there.

In no way alaya-vijnana is "eternal, unchanging". This is Buddhism after all and nobody will posit totally non-buddhistic concepts which could contradict basic teachings of Buddha. Unenlightened beings may mistakenly perceive alaya-vijnana as Soul, but they may perceive so about any skandha. (One interpretation of why skandhas are five is that it's five assumptions of Self.) Standard analogy for alaya-vijnana is violent current of a river (udakaugha), it may be perceived as solid (from a far) but it's highly changing (if looked closer). Alaya-vijnana is only remains to the end of sansara.