Money laundering, at its simplest, is the act of making money that comes from Source A look like it comes from Source B. In practice, criminals are trying to disguise the origins of money obtained through illegal activities so it looks like it was obtained from legal sources. Otherwise, they can’t use the money because it would connect them to the criminal activity, and law-enforcement officials would seize it. Money laundering accomplishes this in three steps: (1) getting the money into the financial system, called "placing," (2) moving it around to hide the illegal taint, or "layering," and (3) commingling it with legitimate funds, known as "integrating."
Casinos used to make it easy to do this. In the 1970s, one organized crime figure went into an Atlantic City casino with nearly $1.2 million in small bills (authorities figured it must have filled a sizable duffel bag), gambled some of it away, then cashed in $800,000 in chips for $100 bills (these would fit comfortably in an attache case), and, some days later, dumped the money into a Swiss bank.