Contextual design is like playing pretend! Pretend you're on a spaceship with your friends. You think about what you want to do on the spaceship, and what things you need on the spaceship to have fun.
In the same way, designers pretend they are you and think about what you want and need to use their products. They do this by watching and talking to you in your real life, to see how you do things and what challenges you face.
After they watch you and ask questions, they make a plan for making products that will work better for you! It's like they built you a new toy that you will love to play with because it's just what you always wanted.