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 do also make screenshots to show the spy what Windows you are working with, they capture information about your internet use, and much more. The spy does not even need physical access to your machine because many current keyloggers send their logs by email.