The term index in investment world refers to the the average performance of the whole or a segment of an investment market, such as the stock market, or an industry. Examples of an index is the Dow Jones, S&P 500 and Nasdaq 100. There’s also an index for industries such as banking, utilities, technology, etc. An index fund is a type of investment that is associated with a particular index. If you search for an index such as the S&P 500, you are likely going to see charts that represents it’s value over a period of time. You will also see that the chart is trending upward over the years which means that if someone has invested on it a couple of decades ago, their money would have grown at the same rate.
Index fund is a great way to diversify your investment since an index is a combination of different companies or investments and you are spreading it across them. Exchange Traded Funds (ETF) and Mutual Funds (MF) usually contain or are tied entirely to an index. If you invest in an ETF or MF that is associated to the Nasdaq 100 then you are basically spreading your money across the 100 different companies that comprise the index. On a yearly basis, some of them will do well and their share price could increase and some of them will not do well and their share price may go down. Note that Nasdaq 100 index has higher risk than S&P 500 since the former is only spreading your money across 100 companies while the latter is across 500 companies. Remember, risk and reward/loss are proportional to each other so putting your money on higher risk investments gives you a chance of making more but also the potential of losing more. So be very very careful and learn as much knowledge as you can from my notes here before making any investment decision.