Think of RAM as your physical wooden-or-formica desktop. It has a certain fixed size and, if you want to work on paper documents, you have to have them on your desk. The number of documents and books you can work on at once is limited by the size of your desk. If you want to work on more paper items at once, get a bigger desk. Similarly, if you want to work with more files and applications at the one time, you need more RAM.
Think if your hard disk as your filing cabinet. It can hold many more paper documents than your desk, but you can't work on a document while it's hanging in a drawer. If you want to work on something, you have to move it from the filing cabinet to your desktop. That's the paper equivalent of loading an application or opening a file. If your desktop is already full, you need to put something back in the filing cabinet.
You keep a lot of things in your filing cabinet that you don't want to work on every day. Those older documents don't slow down your work at your desk unless you bring them out and put them on the desk. They can happily live in the filing cabinet forever ... until you fill the cabinet and then it's time to throw away the old stuff or get another cabinet. Similarly, the number of files on your hard drive does not seriously impact the performance of your computer, unless the disk is over 90% full.
There you go. Not drastically insightful but I've yet to find another explanation that people of all technical abilities (and, literally, none at all) get as quickly as this one.