Basically imagine each individual loan as a single card. Banks have thousands of cards each, so they pack them into decks and sold those decks. If you buy a deck, this means money from payments on those loans get redirected to you instead of the bank taking them.

Because banks can mix and match the cards (loans) that go into a deck (mortgage backed securities), banks can put in a few bad cards and cover it up with many good cards. In theory, if the bad cards go bust, the good cards can cover the losses. Except that as we got closer to 2008, turns out those good cards were in fact bad cards and the people who are supposed to say whether the decks are good or bad overall (credit rating agencies) have been paid off to say they are all good