Let's start with some background on RecyclerView which is needed to understand onBindViewHolder() method inside RecyclerView.
RecyclerView is designed to display long lists (or grids) of items. Say you want to display 100 rows of something. A simple approach would be to just create 100 views, one for each row and lay all of them out. But that would be wasteful because at any point of time, only 10 or so items could fit on screen and the remaining items would be off screen. So RecyclerView instead creates only the 10 or so views that are on screen. This way you get 10x better speed and memory usage.
But what happens when you start scrolling and need to start showing next views?
Again a simple approach would be to create a new view for each new row that you need to show. But this way by the time you reach the end of the list you will have created 100 views and your memory usage would be the same as in the first approach. And creating views takes time, so your scrolling most probably wouldn't be smooth. This is why RecyclerView takes advantage of the fact that as you scroll, new rows come on screen also old rows disappear off screen. Instead of creating new view for each new row, an old view is recycled and reused by binding new data to it.
This happens inside the onBindViewHolder() method. Initially you will get new unused view holders and you have to fill them with data you want to display. But as you scroll you will start getting view holders that were used for rows that went off screen and you have to replace old data that they held with new data.