The TfL website explains it well:
https://tfl.gov.uk/fares/ways-to-pay/pay-as-you-go?intcmp=79963
Pay as you go means that you only pay for the journeys you make when you travel.
With pay as you go, you don't need to buy a ticket before you travel. All you need to do is touch in and out using contactless (card or device) or an Oyster card to pay the right fare.
Pay as you go is cheaper than buying a paper single or return ticket (train companies may offer special deals on some journeys).
In Zones 1-9, your pay as you go fare is capped so you can travel as much as you like in one day or week (Monday to Sunday), without paying more.
https://tfl.gov.uk/fares/touching-in-and-out
To pay the right fare, always touch in on a yellow card reader at the start of your journey and touch out at the end. On a bus or tram you only need to touch in.
Because where you touch in and out tells us where you've travelled from and to, so we can charge you the right fare for your journey.
To pay the right fare on all Tube, DLR, London Overground, Elizabeth line, National Rail, River Bus and IFS Cloud Cable Car journeys:
Always use the same contactless card, device or Oyster card to touch in and out. For example, don't touch in with an iPhone and touch out with an Apple Watch or contactless card.
Always touch out even if the gates are open. If there are no gates, use a freestanding yellow card reader next to entrances, exits or on platforms.
To pay the right fare on buses and trams:
Always touch your contactless card, device, or Oyster card on the yellow card reader at the start of your journey
You don't need to touch out at the end of your journey. If you do, you may pay more than you need to.
If you don't touch in and out, we cannot tell where you've travelled from or to, so your journey will be incomplete.
As we cannot work out the right fare for your journey, we'll charge you a maximum fare.