What Your ISP Can See
Your internet service provider (ISP) routes all of your internet traffic. Without a VPN, they can see: every domain name you visit (DNS queries show the hostname), the IP addresses you connect to, when you connect and for how long, how much data you send and receive, and in some cases (unencrypted HTTP traffic, now rare) the full content of what you send. Even with HTTPS (encrypted web traffic), your ISP can still see which sites you visit -- just not the specific pages or content within those sites.
What They Do With This Data
Data retention: in the EU, ISPs in most countries must retain connection metadata for 6-12 months for law enforcement access (though implementation varies after the CJEU struck down blanket retention requirements). In the US: ISPs can sell browsing data to advertisers (the FCC's 2016 privacy rules that prohibited this were repealed in 2017). In practice: major ISPs sell anonymized (but often re-identifiable) browsing data to advertising networks. DNS-level data is particularly valuable -- it shows every site you visit without needing deeper packet inspection.
DNS and What It Reveals
DNS (Domain Name System) is the phone book of the internet -- it translates domain names to IP addresses. Your ISP usually provides your DNS resolver by default, which means they see every domain lookup: reddit.com, bankwebsite.nl, health-information-site.com. Even if you use HTTPS, your ISP knows which sites you visit from DNS queries alone. DNS over HTTPS (DoH) encrypts DNS queries and prevents your ISP from seeing them -- but this only works if you configure it and use a trustworthy DNS provider (Cloudflare 1.1.1.1, Google 8.8.8.8, or your VPN provider's DNS).
How a VPN Prevents ISP Tracking
When you use a VPN: all traffic from your device is encrypted before it leaves your network. Your ISP sees only: that you are connected to a VPN server (by IP address), how much encrypted data you are sending/receiving, and when you are connected. They cannot see which sites you visit, what DNS queries you make, or what content you access. From the ISP's perspective, all your traffic looks identical -- encrypted data flowing to a VPN server. The VPN provider can see your traffic instead, which is why choosing a trustworthy VPN (ideally with a verified no-logs policy and a favorable jurisdiction) matters.
ISP Throttling
Some ISPs throttle (slow down) specific types of traffic: video streaming, P2P/torrenting, or gaming. Because VPN traffic is encrypted, ISPs cannot identify these traffic types and throttle them specifically. VPNs can therefore improve speeds for throttled traffic types, even if they add slight overhead for non-throttled traffic.