You exchange currencies now, and agree — in the very same contract — to swap them straight back on a set date later.
An FX swap bundles two trades into one: you exchange currencies today at the spot rate (the "near leg"), and simultaneously agree to swap them back on a future date at a pre-agreed forward rate (the "far leg").
Nobody is making a directional bet on the currency — the whole point is that the two legs cancel each other's currency exposure out.
A bank that needs euros for three months but doesn't want to hold euro risk borrows dollars, swaps them into euros now, uses the euros, then swaps back to dollars in three months exactly as agreed.
It's really a funding tool dressed up as an FX trade — a way to borrow one currency using another as collateral.
Banks and central banks use FX swaps constantly to manage short-term funding across currencies.
It's one of the largest corners of the entire FX market by volume, even though almost none of it is directional currency speculation.