It allows to improve your privacy and security on the internet. Tor works by sending traffic through three random servers (also we call it relays) in the tor network. The las relay in the circuit what we call a "exit relay" sends the traffic out on the traffic internet.
Understanding how it's work
Tor client
Entry guard
Middle relay
Exit relay
Destination
A proxy is used to anonymize communication
Tor use the TorBrowser
It encrypts using "onion routing"