When you go to buy a home you probably don't have $300,000 lying around. So you get a loan. A special kind of loan for homes, called a mortgage. The bank gives you the $300,000 and you pay it back + interest over the next 15 or 30 years.

The $300,000 is called your principal. And it's supposed to be a close approximation to the value of your home (after all, that's what it cost you to buy it). As you make payments back to the bank you pay off the interest but you also pay down some of the principal. So let's say after a few years you've paid off $50,000 of the principal. That means you now own a $300,000 home, but still owe the bank $250,000 + interest. This means if you sell your home right now, you'd get $300,000. You would use that to pay off the $250,000 you still owe, and you'd be left with $50,000.

"Equity" is the term we use for how much of your house you've paid off. Or how much you would make if you were to sell it. So in this situation if you've paid off $50,000 of the principal, then you've got $50,000 in equity.