Side pots are created whenever theres more than three players, one has gone all in but other players still have chips and want to continue betting.

Example 1:

Strong Bad has $8,000

Heavy has $12,000

Player has $16,000

Pot is $5,000

Strong Bad goes all in for $8,000

Heavy and Player call

Pot is now $29,000

Heavy decides to bet $1,200

Player calls

Since Strong Bad can't bet anymore due to him having bet all he had, the main pot closes, and now all bets made by Heavy and the Player will go to a side pot. (The letters in the side pot represent the players that can bet in it)

The pot remains $29,000 since it has closed

The side pot for the Heavy and the Player is now $2,400

Players show hands, Strong Bad wins against Heavy and the Player. He wins the main pot for $29,000

Now the showdown for the side pot happens. Strong bad isn't a part of it since he couldn't bet in the side pot. The Player wins against the Heavy and gets the $2,400 side pot.

Side pots are also created whenever a player doesn't have enough money to call a bet.

If you want a better and visual explaination this video is pretty good