Tor is an anonymity network that works by routing traffic through internal nodes to mask its origin. The technical details of how this is achieved are somewhat obscure to a lay person but the principle of onion routing is what I'm going to explain in this analogy.
Imagine you want to send a parcel to someone and they'll send you something back in return.
The simplest way to do this is to put your return address on the parcel, that way the recipient can send their return directly to you. However, this isn't anonymous - the recipient now knows where you live. This is normal internet traffic.
To hide your address from the recipient you could employ a courier firm: you send the parcel to them, they then send it to the recipient but now with the courier firm's address on it so the parcel is returned to them and they return it to you. From the recipient's point of view this makes you anonymous but the courier firm knows both who you are and with whom you are exchanging parcels - so you have to trust the courier firm. This is using a VPN.
To make sure nobody else knows both your address and the recipient's address you could give your parcel to someone with a van. They then drive to someone else with a lorry and put their van into the back of the lorry and the lorry then goes to the recipient. Now the van knows where it picked up your parcel but doesn't know where the lorry took it and the lorry knows where it took it but doesn't know where the van picked up your parcel - neither the recipient, the lorry, nor the van have enough information to piece together the entire journey. This is using Tor.
Like any analogy, if you try and extrapolate from it then your understanding falls apart very quickly (how does the lorry know where it's going if the van didn't tell it?). If you're interested in learning more about this then there's a good Computerphile video explaining onion routing (TL;DW: Encryption).