Lossless files compress the song, like a zip file. Everything is inside when you open it. Think of it like folding a piece of paper in fourths. You can open it back up and have all the information that was on the paper.
Lossy files compress the song and disregard data from various parts to make it smaller. Not everything is there when you open it. It's like cutting a piece of paper in fourths and not keeping all the pieces. You can never get that piece of paper back entirely and the info it contained is forever lost.
Your other post about upconverting video to 1080p is a good example. There weren't 2.1 million pixels to begin with (the number of pixels in a 1080p frame), so these new pixels are imagined by the computer, using various algorithms to turn 1 pixel into 4, and blend, etc... basically making stuff up that doesn't exist. This is the same thing as converting low bitrate 128 or so, to higher bitrate. The computer is just making up information that doesn't exist and is accurate or inaccurate to varying and uncontrollable degrees.
Edited by obzilla - 5/5/12 at 11:13am