Aave is a decentralized lending protocol (part of the broader group of protocols known as DeFi) that allows users to deposit crypto assets to earn APY rewards, and to borrow other crypto assets against that collateral. It makes it possible for users to borrow, lend, and earn interest on their crypto — making use of smart contracts instead of intermediaries like banks.
AAVE is a “governance token” that gives holders a say in the future of the protocol. It can also be staked, thus earning rewards for holders.
The Aave protocol facilitates the creation of lending pools. If you want to lend some of your crypto, you can deposit it into a pool. Anyone who wants to borrow deposited assets can draw from Aave pools as long as they provide sufficient collateral. (Fun fact: “Aave” means ghost in Finnish.)