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The term can be confusing to new gardeners as it is used for two separate things.
You can buy various bagged composts at garden centres "Multi Purpose" "John Innes" etc these are made from a variety of materials, Peat, Coir, Bark, and Loam. These "Composts are for growing plants in pots and containers. You can add them to your garden soil but this is an expensive way of doing it.
But when talking about compost in relation to adding it to your garden soil gardeners are normally referring to anything organic that has rotted down, this can be your kitchen and garden waste that has been composted, grass mowings, composted green waste from the council, Stable muck, spent hops, basically anything that will add humus (organic material) to the soil.
Adding humus does 3 things, it improves the soils ability to drain so it doesn't waterlog, and also oddly, it improves the ability of soils to hold moisture so plants do not suffer from drought. Many composts also hold good amounts of the nutrients plants need for growth.
Soil in the garden is like a living organism and adding compost is one of the
best ways of improving its health. Hard work but well worth it!