These are named after the Pareto principle, where 80% of most effects are due to 20% of the inputs. The idea is to find the 20% of issues, which are causing you 80% of the problems; the Pareto charts are bar charts which let you quickly see major sources of issues – this enables you to focus your efforts on the biggest problems.
The x (bottom) axis are issues; either defects or causes of defects/errors, against a y axis of number of defects. You order the bars in order of number of issues, although you can have an ‘other’ category at the end if there are large numbers of minor issues. You can optionally have a cumulative percentage line above, so that you can more clearly see the proportions of each issue and how they stack up.
There is a Pareto effect if the 80% threshold is hit with only a few categories (generally, less than 20% of the categories), and there is no Pareto effect if the 80% involves a large proportion of the categories (which would mean your process improvement efforts will have to be more far-reaching).
If there is a Pareto effect, you can focus your efforts on this small number of issues, and with relatively little effort (compared to tackling all issues), you can remove 80% of your issues.