Compound interest (capitalisation) means that interest is paid not only on the original amount but also on interest that has already been added.
In plain words
As a result money grows faster than with simple interest, and the longer the period, the bigger the difference. Banks add interest monthly or quarterly to the deposit balance, so the effective annual rate is higher than the nominal one. The formula is S = P × (1 + r / n)^(n × t), where P is the starting amount, r the annual rate, n the number of compounding periods a year and t the years. The other side of it: on loans, compounding increases the debt.
Example. UAH 1,000 at 10% a year: with simple interest you have UAH 1,100 after a year, and with monthly compounding 1,000 × (1 + 0.10 / 12)^12 ≈ UAH 1,104.71 (an illustrative example).