The short seller borrows shares from a lender, sells them, and later buys them back to return them. The profit is the fall in price, less borrowing fees and any dividends owed to the lender.
A short squeeze happens when a rising price forces short sellers to buy back, pushing the price higher still.
Why it matters
Short sellers help markets price overvalued and fraudulent companies, and add liquidity. ASIC publishes daily short positions for ASX shares; very high short interest can mean either a crowded bearish view or a squeeze waiting to happen.
General information, not advice.