Bone marrow is the soft, sponge-like material found inside bones. It contains immature cells known as hematopoietic or blood-forming stem cells. (Hematopoietic stem cells are different from embryonic stem cells. Embryonic stem cells can develop into every type of cell in the body.) Hematopoietic stem cells divide to form more blood-forming stem cells, or they mature into one of three types of blood cells: White blood cells, which fight infection; red blood cells, which carry oxygen; and platelets, which help the blood to clot. Most hematopoietic stem cells are found in the bone marrow, but some cells, called peripheral blood stem cells (PBSCs), are found in the bloodstream. Blood in the umbilical cord also contains hematopoietic stem cells. Cells from any of these sources can be used in transplants.
This answer is based on source information from the National Cancer Institute.