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The name keylogger was defined back in old DOS times, where computers were
handled just by using a keyboard. The most basic keyloggers back from that
time just log the keys you press. The spy, a person with physical access to
your machine, could get that log at a later point and see everything you
typed.
Modern keyloggers are much improved. They do not only log the keys you
press, but make also screenshots to show the spy what Windows you are working
with, the capture information about your internet use, and much more. The spy
doesn't even need physical access to your machine because many current
keyloggers send their logs by mail.
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