To bring it down to it's simplest form, both systems use a fixed frequency carrier wave, this is the frequency you tune your Radio into to.
AM has a fixed carrier and the amplitude varies up and down in direct proportion to the message being sent.
FM has a fixed carrier and the frequency varies up and down in direct proportion to the message being sent.
The simplest AM is produced by multiplying the carrier by the message. If you take a fixed carrier of Fc and a fixed message Fm and multiply the two sine waves together, then using the half sine rules, sin(fc) x sin(fm) => {sin(fc+fm)+sin(fc-fm)}/2 [correct my maths please].
In a real Am modulator you end up with a sin(fc) term and a sin(fm) term, you filter out the message and then you have a double sideband AM signal.
If you use Excel or the like to plot sin(fc)+sin(fc).sin(fm) you will see that the amplitude goes up and down in line with fm (Make sure fc is at least 10 times larger than fm)
This gives the clue to demodulating. Using a diode you can delete the negative half of the wave form, leaving a series of positive pulses of varying amplitude. (put your Excel output through the function IF({cell}<0,0,{cell})
If you low pass filter these (get rid of fast changes in amplitude) using a capacitor and resistor, you get the average of the positive pulses, which is proportional to the message waveform. (Put a moving average Trendline on your Excel Graph)
The average is offset by a DC level, this is proportional to the strength of the received carrier waveform, you use this to control your output amplifier gain (agc - automatic gain control) which keeps the amplitude constant when traveling in a car.
FM is slightly more complicated to produce. You use a nonlinear diode called a varicap diode to shift the natural frequency of an oscillator tuned to your carrier wave.
I would need to check up on the finer points of FM before giving more detail.