On the ballot, voters rank the candidates in order of preference. Each voter has one vote which counts for the highest preferred candidate that can use it. Votes for defeated candidates are transferred to other candidates still in the race for each round of counting. It’s just like a series of runoff elections except that it is accomplished on one ballot – hence the term, “Instant Runoff Voting.”
This animated video from Fairvote.org explains in a little bit more detail:
