In short: an index fund is a fund that does not choose its own assets but follows the composition of a given market index — with fewer decisions and usually a lower fee.
Simply put: An index is a list of securities used to measure a market. An index (passive) fund holds the same securities in the same proportions. So its result is close to the index minus fees. It can be an ordinary mutual fund or an ETF.
Example: Two funds track the same index. If the index returns 5% in a year, a fund with a 0.2% fee returns about 4.8%, and a fund with a 1% fee about 4%. On €10,000 the difference is about €80 in a single year.
Watch out: an index fund is not protected from falls — when the index drops, the fund drops too.
Source: EU/OECD-INFE (2022), competence 193; ESMA — https://www.esma.europa.eu