Assuming you mean financial interest, it works like this:

You start with £100 which you have deposited in a bank.

You get 5% interest per year.

After the first year you have £105, that's 100 * (1 + 0.05)

After the second year you have £110.25, that's 100 * (1 + 0.05)^2

After the third year, you have £115.76, that's 100 * (1 + 0.05)^3

And so on.

The bank pays you interest in order to incentivise you to put your money in the bank. The bank can then lend this money out to other people and make a profit from the difference between the loan interest (that the bank gets from the person with the loan) and the savings account interest (that the bank pays out to you).

Banks help the economy by strongly encouraging everyone to lend their money somewhere useful rather than stuff it under a mattress and have it do nothing.

Obviously there's a lot more to finance. Has that helped? What specific thing were you confused about?