Hello & welcome,
Masternode is the key component of PoS (Proof of Stake) system where dedicated wallet servers called "Masternodes" handle payment transactions and update blockchain.
Think of them as dedicated servers to handle payment transactions.
Some of its functions are:
- Process payments and update blockchain
- Process "dark send" or PrivateSend payment where you can send a payment anynomously
The way it works is that your setup a masternode and lock up a certain number of coins (Bitrad = 2500) and let it run 24/7. By setting up the masternode and running it, you get rewarded with coins.