With a tor exit node, other people route their internet traffic through other people's computer, and the last hop is yours. So other people use your IP address to browse the web and use applications. Now when an adversary like your ISP looks at which websites get visited from your IP, they're not sure if it's actually you, or someone else doing the browsing.

Of course there's a risk that some naughty corners of the web get visited that you don't want to associate with.