The Germans didn't have a successful spy network in the UK and their photo reconnaissance was not as good as the Allies - they didn't spend as much resource on this and with the Allies having a good advantage in the skies over England it was a difficult thing to do.

Once Britain had successfully defended itself in 1940, the US joining the Allies in late 1941 and subsequent successes it was pretty inevitable that an invasion of Europe and more specifically France would come. What the Germans didn't know was where and when. Logistically an invasion of the Pas de Calais area was the obvious choice as its the closest point to England and had suitable beaches to land on. It was decided however that this was too obvious.

The Allies embarked on a huge deception plan to fool the Germans and provide a strategic scenario to help the invasion become a success. The overall plan was called Bodyguard, which incorporated two operations called North and South Fortitude. The basic premise was to make the Germans believe the invasion would come at Pas de Calais. An entire fake army was invented and positioned in the South of England, inflatable tanks and aircraft were positioned in fields for the Germans to see on the limited photo reconnaissance that they did do. The fake army was given given a commander - General Patton of the US Army. Information was passed to the Germans by double agents to continually reinforce the German belief of an invasion at Calais. No agent is more famous than Joan Pujol Garcia, known as Garbo to the Allies.

Pujol was a Spanish farmer who hated war. He had offered himself to the German intelligence services as a diplomat who claimed to visit London often. Although he'd never even been to England he began creating fake intelligence reports and sending them to the Germans, he even fabricated a network of sources that he claimed gave him the information. The Germans believed and began to trust him. Pujol offered himself to the Allies as a double agent and for reasons not entirely clear, they ignored him.

By this time the Allies were regularly decrypting German enigma messages and reference to a spy the Germans called Arabel and information he'd supplied began popping up. The Allies were initially very concerned (that were may be a spy) and then rather confused - some of the information didn't make sense. For example merchant seamen drinking wine in pubs (unheard of, those men would drink beer or ale), lots of details were inaccurate. This was Pujol, the inaccuracies were simply because he didn't know any better (and seemingly, neither did the Germans).

The Allies then began to take him seriously. He was put under the control of the British MI5 and began feeding the Germans information provided by MI5. This included assurances of invasion at Calais. Even on the morning of June 6th and beyond he was sending messages to the Germans saying that the Normandy invasion was a diversionary tactic and the main invasion was still to come at Pas de Calais, to be carried out by Patton's fake army.

In July 1944 the Germans awarded Pujol the Iron Cross for his contribution to the German war effort. Four months later King George VI made him a member of the Order of the British Empire. Few others, if any received such accolades from both sides during the war.

Basically, the limited availability of real information and the willingness to accept false information that reinforced the beliefs of the German High Command meant that they were completely misled and therefore did not seek further confirmation or intelligence on an invasion.

If you'd like more detail this book has a good overview of Fortitude: http://www.amazon.co.uk/Operation-Fortitude-Greatest-Second-World/dp/0007395876