In short: a pyramid scheme is a scheme in which members earn not from a real product or activity but from the fees of new members they recruit; it always collapses when new people run out.
Simply put: Everyone pays to join and gets money when they bring in others. The founders and early members at the top profit. Everyone below loses — because the number of people in the world is finite. If you earn by recruiting people, you are not an investor but a recruiter, and you may carry legal responsibility.
Example: If everyone recruits 6 people, level 10 needs 6¹⁰ = 60,466,176 people, and level 13 needs 6¹³ = 13,060,694,016 — more than the population of the Earth.
Watch out: "everyone is doing it" and "I'll get in early and out in time" are the most dangerous thoughts. Nobody inside knows when the end will come.
How to spot it: guaranteed high returns, pressure to bring in friends, no clear idea of what is being sold. Check the company with the financial supervisor and do not pay an "entry fee".
Source: U.S. SEC, Investor.gov — "Ponzi Scheme" and "Pyramid Scheme": https://www.investor.gov/protect-your-investments/fraud/types-fraud/ponzi-scheme · Example: Bulgaria — Financial Supervision Commission (FSC): https://www.fsc.bg