Let's see how much I can get wrong.
Think of it like two ends of a pipe with water flowing in one side and out the other. Packet loss is basically what happens if there is a small leak somewhere in that pipe. So water enters one side but not all of it makes it out. But for packets it isn't water being lost it is information that is being lost. Somewhere in your "pipe" you are leaking packets. If it was just water you probably wouldn't notice at the outlet but the information in packets is unique so you will notice lag or glitches. The leak could be between the ISP and your modem, it could be between your modem and your Xbox. Typically it is router/modem related.