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How are APIs or Frameworks made, so scripts can use their functions but you cannot see the code?

I was wondering how I could program like a certain API, I have written an algorithm that I want to publish so people can use it, but I don't want people to see the code, and steal it? Paranoid, I know, but still.
How is that made, so for instance I can in a C# script (the API would also be written in C#), include it (with using ApiName) and use the functions inside, for instance if the API has a function that I program like "void Calculate(float x, float y)", and then from a script they can call "Calculate(100, 200)" for instance. I know it's somehow possible because of the Windows API, etc. Also is creating a Class Library the same thing?

Before any code runs, it is either compiled or interpreted into binary. This is highly simplified but that is the general idea. As long as a library or API provides an interface like names of functions, the implementation itself can be compiled and still work.
For C#, NuGet is a good example, you can create a NuGet of your code (see https://learn.microsoft.com/en-us/nuget/create-packages/creating-a-package) where the public function and method signatures will be visible and usable but the implementations will be compiled. DLLs work in a similar way. You can reference them and call their public members but not see the code unless you use a tool to decompile them.

Detecting if a class/type is defined prior to compiling

This is similar to a few other threads i have found, but I haven't found the answer I need yet. I would appreciate a direct answer, even if it is "no, you can't do that".
Is there a way to use one block of code if a class/type exists and another if it doesn't. The result would be the same as using preprocessor directives but without the need to #define and manually comment or un-comment something in a file.
This may be a special use-case. I'm not sure. I'm working in an environment where sets of files can be installed, or not, before anything is compiled. So someone could buy a plugin which gets "installed" (files added to the project) which makes classes/types available for use (like extending an API). I need to provide a workaround if someone doesn't have one of our other plugin packages. I hope that makes sense.
It just wouldn't be user-friendly to ask someone to open up one of our files, if they have another plug-in, to un-comment a preprocessor directive, unless we have to.
e.g. I know this doesn't work because it only tests boolean if #define is used, but it illustrates what I am trying to do...
#if SomeType
SomeType.DoSomething();
#else
DefaultWay.DoSomething();
EDIT: I added this as a C# feature suggestion. Please vote here:
http://visualstudio.uservoice.com/forums/121579-visual-studio/suggestions/2297494-add-type-testing-as-preprocessor-directive
I don't see how reflection would be able to do this, but I am new to C#, so examples using relection, if it is possible, would be great.

Instead of using pre-compiler statements (which I don't know if they would work anyway if the client didn't have to recompile after installing your plug-in), I would suggest querying the assembly and trying to instantiate an instance of the class by string as seen here:
C# - Correct Way to Load Assembly, Find Class and Call Run() Method
Assembly assembly = Assembly.LoadFile(#"C:\dyn.dll");
Type type = assembly.GetType("TestRunner");
if (type != null)
//Do Something
Editing to show Activator call
if type is not null then use this to create an instance of the type you want.
var obj = Activator.CreateInstance(type);

You could define interfaces for your types/services that your evaluation-provided code supports, but doesn't provide. Then you could use a plugin framework like MEF, which is built into the .Net Framework (v4.0).
MEF will do the reflection and assembly enumeration for you. You just have to define simple extension points in your code.
Here is some basic documentation for MEF. It might be specific to the Codeplex version of the code (not sure) but it shouldn't be too old, and should give you a good idea of how it works:
http://mef.codeplex.com/wikipage?title=Guide&referringTitle=Documentation
Alternative ideas
You might want to solve this with licensing rather than distribution.
You're going to have to solve the licensing problem anyhow, so you can collect money from users, and so you can sue people who grievously violate your copyright.
If your code is worth distributing, you won't be able to prevent distribution. Piracy is not preventable.
And most licensed code I've used recently have full-featured but timed trials, and phone home. They install all the code, but simply disable parts of it if they aren't licensed. It is hard for someone to know if they want to pay for your advanced features if they can't try them out :)

Do you really care what is present at compile-time, or at run-time? You might be able to use a Factory pattern to encapsulate the logic for which class to instantiate assuming that polymorphism is possible (they both share an interface or base class).

How to manage creating/compiling dynamic objects in .net 4.0

I am writing an application that allows the user to create custom algorithms for computing values over a collection of objects. Simply put, i will be having a string with the source code of class with one method.
The solution I have implemented is to compile the string source code in a separate dll for each such custom algorithm and then load them using Assembly.Load and instantiate the class saved in the dll. From a maintainability point of views, this means that i have to store the source code in the db (for example) and also manage the existence of the compiled dlls (recreate by compiling again the source code if it is missing)
Is there a better way to do this, considering the new features of .Net 4.0?
EDIT:
The input source code is C# and i am using CSharpCodeProvider to compile the code. The custom classes are all derived from a base class and they override the method that actually holds the computation logic. What i would really like to do is to get rid of the dll management and not lose (too much) performance in compiling all the classes every time my application starts up

I would look at scripting languages; IronPython is easy to embed, or there are JavaScript engines for .NET. Simple, and usually fast enough.
If (comments) you need to use c#, I would:
build all the current methods at the same time into one assembly; solves a lot of problems
if the data changes during execution, make use of AppDomains so that I can unload them
I've done something similar where the model/rules were XML, running it through a transform to get c#, and compiling with CSharpCodeProvider (or whatever); and simply polling every minute or so to see if a new build is required

The CSharpCodeProvider has been around for a while and should fit the ticket. It can be used to generate the separate libraries like you have been doing (perhaps you are using the CSharpCodeProvider), but it can also be used to generate dynamic class objects. If they all implement an interface you can cast the objects as an interface or you can use reflection to invoke your logic. Here is a codeproject article to achieve something similar:
http://www.codeproject.com/KB/dotnet/dynacodgen.aspx

Is there an equivalent to Java's ClassFileTransformer in .NET? (a way to replace a class)

I've been searching for this for quite a while with no luck so far. Is there an equivalent to Java's ClassFileTransformer in .NET? Basically, I want to create a class CustomClassFileTransformer (which in Java would implement the interface ClassFileTransformer) that gets called whenever a class is loaded, and is allowed to tweak it and replace it with the tweaked version.
I know there are frameworks that do similar things, but I was looking for something more straightforward, like implementing my own ClassFileTransformer. Is it possible?
EDIT #1. More details about why I need this:
Basically, I have a C# application and I need to monitor the instructions it wants to run in order to detect read or write operations to fields (operations Ldfld and Stfld) and insert some instructions before the read/write takes place.
I know how to do this (except for the part where I need to be invoked to replace the class): for every method whose code I want to monitor, I must:
Get the method's MethodBody using MethodBase.GetMethodBody()
Transform it to byte array with MethodBody.GetILAsByteArray(). The byte[] it returns contains the bytecode.
Analyse the bytecode as explained here, possibly inserting new instructions or deleting/modifying existing ones by changing the contents of the array.
Create a new method and use the new bytecode to create its body, with MethodBuilder.CreateMethodBody(byte[] il, int count), where il is the array with the bytecode.
I put all these tweaked methods in a new class and use the new class to replace the one that was originally going to be loaded.
An alternative to replacing classes would be somehow getting notified whenever a method is invoked. Then I'd replace the call to that method with a call to my own tweaked method, which I would tweak only the first time is invoked and then I'd put it in a dictionary for future uses, to reduce overhead (for future calls I'll just look up the method and invoke it; I won't need to analyse the bytecode again). I'm currently investigating ways to do this and LinFu looks pretty interesting, but if there was something like a ClassFileTransformer it would be much simpler: I just rewrite the class, replace it, and let the code run without monitoring anything.
An additional note: the classes may be sealed. I want to be able to replace any kind of class, I cannot impose restrictions on their attributes.
EDIT #2. Why I need to do this at runtime.
I need to monitor everything that is going on so that I can detect every access to data. This applies to the code of library classes as well. However, I cannot know in advance which classes are going to be used, and even if I knew every possible class that may get loaded it would be a huge performance hit to tweak all of them instead of waiting to see whether they actually get invoked or not.
POSSIBLE (BUT PRETTY HARDCORE) SOLUTION. In case anyone is interested (and I see the question has been faved, so I guess someone is), this is what I'm looking at right now. Basically I'd have to implement the profiling API and I'll register for the events that I'm interested in, in my case whenever a JIT compilation starts. An extract of the blogpost:
In your ICorProfilerCallback2::ModuleLoadFinished callback, you call ICorProfilerInfo2::GetModuleMetadata to get a pointer to a metadata interface on that module.
QI for the metadata interface you want. Search MSDN for "IMetaDataImport", and grope through the table of contents to find topics on the metadata interfaces.
Once you're in metadata-land, you have access to all the types in the module, including their fields and function prototypes. You may need to parse metadata signatures and this signature parser may be of use to you.
In your ICorProfilerCallback2::JITCompilationStarted callback, you may use ICorProfilerInfo2::GetILFunctionBody to inspect the original IL, and ICorProfilerInfo2::GetILFunctionBodyAllocator and then ICorProfilerInfo2::SetILFunctionBody to replace that IL with your own.
The great news: I get notified when a JIT compilation starts and I can replace the bytecode right there, without having to worry about replacing the class, etc. The not-so-great news: you cannot invoke managed code from the API's callback methods, which makes sense but means I'm on my own parsing the IL code, etc, as opposed to be able to use Cecil, which would've been a breeze.
I don't think there's a simpler way to do this without using AOP frameworks (such as PostSharp). If anyone has any other idea please let me know. I'm not marking the question as answered yet.

I don't know of a direct equivalent in .NET for this.
However, there are some ways to implement similar functionality, such as using Reflection.Emit to generate assemblies and types on demand, uing RealProxy to create proxy objects for interfaces and MarshalByRefObject objects. However, to advise what to use, it would be important to know more about the actual use case.

After quite some research I'm answering my own question: there isn't an equivalent to the ClassFileTransformer in .NET, or any straightforward way to replace classes.
It's possible to gain control over the class-loading process by hosting the CLR, but this is pretty low-level, you have to be careful with it, and it's not possible in every scenario. For example if you're running on a server you may not have the rights to host the CLR. Also if you're running an ASP.NET application you cannot do this because ASP.NET already provides a CLR host.
It's a pity .NET doesn't support this; it would be so easy for them to do this, they just have to notify you before a class is loaded and give you the chance to modify the class before passing it on the CLR to load it.

Modify an internal .NET class' method implementation

I would like to modify the way my C#/.NET application works internally. I have dug into the .NET framework with Reflector and found a pretty good place where I could use a different implementation of a method. This is an internal class in the System.Windows.Forms namespace. You obviously cannot alter the code of this class with the usual means so I thought it would be possible to replace a method in there through reflection at runtime. The method I would like to entirely replace for my application is this:
public static WindowsFontQuality WindowsFontQualityFromTextRenderingHint(Graphics g)
in the class:
internal sealed class System.Windows.Forms.Internal.WindowsFont
Is there any way to load that type and replace the method at runtime, not affecting any other applications that are currently running or started afterwards? I have tried to load the type with Type.GetType() and similar things but failed so far.

You may be able to do this with the debugger API - but it's a really, really bad idea.
For one thing, running with the debugger hooks installed may well be slower - but more importantly, tampering with the framework code could easily lead to unexpected behaviour. Do you know exactly how this method is used, in all possible scenarios, even within your own app?
It would also quite possibly have undesirable legal consequences, although you should consult a lawyer about that.
I would personally abandon this line of thinking and try to work out a different way to accomplish whatever it is you're trying to do.

Anything you do to make this happen would be an unsupported, unreliable hack that could break with any .NET Framework update
There's another, more correct, way to do what you are trying to accomplish (and I don't need to know what you're trying to do to know this for certain).
Edit: If editing core Framework code is your interest, feel free to experiment with Mono, but don't expect to redistribute your modifications if they are application-specific. :)

I realy think, this is not good idea. But if you realy need it, you can use a Mono Cecil and change the assembly content. Then you need setup a config file for Redirecting Assembly Versions.
And last but not least, your advance will be propable illegal.