I wanted to answer right away but I did not know where to start. Not because I didn't know the answer but I was a bit surprised that my friend knew the word "outsourcing" but was not aware of what it meant.
I tried to give my friend the simplest answer possible, so I told him: "You know how to drive but you're asking someone (driver) to drive for you, that's outsourcing." Not the best example, I know. I know for a fact that my friend hires an agency to handle their HR needs, so I told him that's outsourcing. They also hire the services of a firm that handles their deliveries -- that is outsourcing. They also hire the services of an accounting firm to handle most of their financial and government transactions -- that is again outsourcing. And of course, the most popular and widespread method of outsourcing -- call centers -- to handle customer needs, queries and complaints.