This seems to be a good explaination.
Basically when the bank loans out money... they are creating money. If you put $5,000 in the bank that is still your $5,000 (you can take it out and spend it anytime you want). But the lends out a portion of it, let's say $2,000, to someone else who can also spend it. So the $5,000 of purchasing power has become $7,000. And, money is created.
(It is helpful to understand that money is the ability to buy something... it doesn't have to be green rectangles).