Supply is the amount of something that is available
Demand is how much of that thing people want to buy
And the paragraph:
It's saying that competition makes it so that prices are as low as possible. The best part of a market economy is that prices change when supply and demand change. People can decide what they want to make, who they want to make it for, and how much they want to make, because it isn't controlled by the state. If something is too expensive, nobody will buy it, so the person who made it will have to lower the price.