What is VPN actually used for?

I've never really understood why VPNs are used. I know it stands for Virtual Private Network, but in simple terms how does it work and what is it used for?

It's used to allow secure remote access to a network. The second paragraph from the Wikipedia article sums it up nicely:

It encapsulates data transfers between two or more networked devices which are not on the same private network so as to keep the transferred data private from other devices on one or more intervening local or wide area networks.

It effectively makes the remote machine part of host network for access to resources and other machines on that network. So you can use the company e-mail, intranet and printers for example.

Find out more on Wikipedia

In a nutshell it connects two private networks securely through a public network. VPN