A liquidity pool is a collection of tokens locked in a smart contract. Liquidity pool forms the backbone of the HydraSwap DEX, where LPs add equal value of two tokens into a liquidity pool to enable efficient asset trading and generate returns. A liquidity pool creates a market for the particular pair of assets (e.g. SOL/USDC), and when you want to buy a particular asset, there does not need to be someone with the opposite interest, but only sufficient liquidity in the pool.
This is unlike the order book model often seen in traditional stock exchanges and CEXes, where buyers and sellers place orders and the trade would be done when both buyer and seller agree on the price.