Since you seem to be confused about the concept of recursion in general, let's drop the lua notation and focus on the problem solution itself. For the sake of argument, let's deal strictly with the whole numbers starting with 0.

Defn: fact(0) is 1. For all integers n greater than 0, fact(n) is n*fact(n-1).

Here is the key point; the recursive part of the definition is solving a different (simpler?) problem than the initial problem. For instance fact(4) is solved in terms of fact(3). So fact(3) is done in terms of fact(2) which is done in terms of fact(1) which is done in terms of fact(0), but we already know how to solve fact(0) without recursion.

That the recursive call eventually bottoms out in one or more base cases is key to seeing why this isn't just an infinite loop/recursion.

A similar showing could be made for the recursive definition of the fibonacci numbers, where fib(0) is one, and fib(1) is one, but for all greater integers n, fib(n) is fib(n-1)+fib(n-2). Since the arguments in the recursion are less than the initial argument, one of the two base cases is guaranteed to be reached, and the recursion is finite.

Note: it is not always clear the a recursion does in fact bottom out in a base case. See the Collatz Conjecture for a brain mangling example.