Calories in, calories out. How does it work?

No. it means you need to be at a calorie deficit each day below your total daily energy expenditure (TDEE). 3500 calories equals about 1 lb of weight gain or loss. Say for example, you need to eat 2500 calories a day to MAINTAIN your current weight. If you eat 3000 calories a day, you will gain around 1lb a week. If you eat 2000 calories a day, you will lose 1 lb in a week. (500 calories x 7 days a week = 3500 calories).

So if you eat 2500 calories a day, you can burn off 500 calories through exercise, and thus be at 2000 calories a day. An easier thing to do is just eat only 2000 calories a day. You can eat 500 calories in 5 minutes, or you can burn 500 calories in about an hour depending on exercise.

If you exercise AND eat less, you daily deficit will be bigger, thus losing weight faster. Exercise main goal is to maintain or build better body composition. When you lose weight without exercise, you lose muscle mass in the process. You want to minimize muscle loss, and maximize fat loss.

You'll have to explain this to me as if I were a five year old. It means basically that I need to burn more calories than I eat, right?
So if I eat 2000 kcal a day, does that mean I need to burn 2500 kcal by working out to attain a weight loss? Because that sounds like A LOT of hours in the gym. Explanation, please.

No...you "burn" XXXX calories per day...exercise is actually only a very small part of your "burn". Most of your "burn" is just being alive...you heart pumping, your lungs working, etc.

Example...my total calorie requirements to maintain my current weight are roughly 2,700 calories. Of those 2,700 calories, my body requires roughly 1,800 just to perform the basic functions of being alive...I would burn these calories doing absolutely nothing but sleeping for 24 hours...I would "burn" these calories in a coma. These are my BMR calories and they represent roughly 67% of my daily "burn"...on average, BMR calories represent roughly 65% - 70% of an individuals daily "burn".

Then I just have my day to day bull****...crawling out of bed and taking a shower...getting the kids ready for day care...cooking and cleaning and driving to the office and typing this response, etc. Also, there is the thermal effect of eating food...yes...you actually burn calorie digesting your food. This is referred to as my NEAT (Non Exercise Activity Thermogenesis) and my TEF (Thermic Effect of Food)...this is roughly 500 or so calories of my daily "burn".

Then I have my EAT (Exercise Activity Thermogenesis)...this is generally in the neighborhood of 350 - 400 calories per day...only about 13 - 15% of my daily calorie requirements.

So...1800 + 500 + 400 = 2,700 calories to maintain weight. To lose 1 Lb per week on average I need to have a calorie deficit of 3,500 calories...so 500 calories per day. 2,700 - 500 = 2,200 gross calories per day to lose 1 Lb per week. Note that this is known as the TDEE method where exercise is accounted for upfront in my formula as part of my activity level. To utilize this method you would need to customize your goals in MFP because MFP is a NEAT method calculator not a TDEE calculator.