Compound is a collateralized lending platform. The most popular tokens to lend/borrow are ETH, DAI, USDc.
In addition to being a lending platform, Compound is well known for its on-chain governance contracts. (See more in the Decentralized Governance tab)
Interest rates are set by the market. The more borrowing, the higher the interest rates become.
Collateral is determined by Collateral Factor. If ETH has a collateral factor of 60%, you can borrow 6 ETH if your collateral is 10 ETH.
Liquidation. Part of your collateral can be sold at a discount to market price to liquidators. This discount rate is determined by community governance.