Home Equity reflects the amount of money that is the approx. difference between the current market value of your home and the loan amount you owe on your house.
For example: if your house would have a realistic market value of 300 thousand USD and you still owe the bank (=your current mortgage amount) 200 thousand USD then you would have a theoretical home equity of 100 000 USD.
Theoretical because the bank usually offers an equity a little bit lower than that in order to be on the 'safe' side in case your home goes into foreclosure or the market drops.
The banks are willing to give you a loan (home equity loan) on your house because the feel secure to recover their home equity loan plus original mortgage in case that the house goes on the market for sale.