in short what it does is create a tunnel from your system to the VPN server then the VPN server connects to the internet.
so all the traffic from your system outbound is encrypted and has no identifying details.
and as there would be hundreds of users on the VPN server no-one knows who's traffic is whos.
great for secruity for public networks.
Some also have servers in multiple countries you can connect to so lets say you ahve a foxtel Go account but are in Germany, Foxtel block the traffic. but you can select a AU server and stream your V8Supercars. (this is a completely random scenario as I'm sure you can imagine)
but lets say you are being a little dodgy and want to download a tv show or a movie, (not that any-one here would)
so long as you pick a VPN provider that does not keep logs of traffic there is no-way to track who is downloading what data, even better select one of those end points i a foringe country that has no data laws.
there are a bunch of servers that do this for a nominal fee. Below is the one I use
https://www.ipvanish.com/why-vpn.php
https://www.ipvanish.com/privacy-policy.php#1