Although bones vary greatly in size and shape, they have certain structural similarities. Bones have cells embedded in a mineralized (calcium) matrix and collagen fibers. Compact bone forms the shafts of long bones; it also occurs on the outer side of the bone. Spongy bone forms the inner layer.
Structure of bone, a type of connective tissue. Image from Purves et al., Life: The Science of Biology, 4th Edition, by Sinauer Associates (www.sinauer.com) and WH Freeman (www.whfreeman.com), used with permission.
Compact bone has a series of Haversian canals around which concentric layers of bone cells (osteocytes) and minerals occur. New bone is formed by the osteocytes. The Haversian canals form a network of blood vessels and nerves that nourish and monitor the osteocytes.
Spongy bone occurs at the ends of long bones and is less dense than compact bone. The spongy bone of the femur, humerus, and sternum contains red marrow, in which stem cells reproduce and form the cellular components of the blood and immune system. Yellow marrow, at the center of these bones, is used to store fats. The outer layer of the bones is known as the periosteum. The inner layer of the periosteum forms new bone or modifies existing bone to meet new conditions. It is rich in nerve endings and blood and lymphatic vessels. When fractures occur, the pain is carried to the brain by nerves running through the periosteum.
Information provided by: http://gened.emc.maricopa.edu