After simply being able to move value from one address to another, the most prominent use case for defi is to get a loan. A loan typically means someone gives you money, so long as you promise to give it back later, with some additional value.
In defi however, there are no identities besides addresses with random values. Therefore there is no way to ensure that someone will pay back their loan. That's why defi loans are over-collateralized. This means that someone must lock tokens worth more than their loan into a smart contract to get that loan. The value locked is called "collateral", and the tokens received as the loan are called "debt". If someone doesn't pay back their loan, their collateral is taken from them.
This is because they still own the value that they have locked as collateral. They can get it back if they pay back their loan. In the case of Ethereum, there are many people that hold a lot of Eth but don't want to sell it. A lending protocol allows them to use that Eth to borrow something else, while still owning their Eth and being able to get it back at any time.
One risk is that the smart contracts have a bug. Lending protocols are complex systems, and there is always the possibility that there is a bug that is discovered that allows a hacker to steal money from the system.
Another is that the value of the collateral decreases relative to the debt and that the position gets "liquidated". For example if someone locks Ethereum as collateral and borrows a dollar stablecoin, if the value of Eth relative to the dollar falls, their position could become "undercollateralized". In an "undercollateralized" position, the value of the collateral is too low relative to the debt. This means that that position can be "liquidated"
A liquidation is when the value of the collateral for a loan is too low relative to the value borrowed. A liquidator can then use the collateral from the position to pay off the debt, and then keep some of the collateral for themselves. This collateral value is taken from the person who created the position, meaning it is in a position owner's best interest to make sure there is enough collateral in their position.