As the name sugggests the Magstripe card carries a magnetic stripe that contains a unique code.  The card reader reads this code and compares the number with the database before allowing access. 

This system was widely in use in the 80's as a commercial access control system but has been superceded by RFID "fob" systems in recent years due in the most part to the fact that the data on the stripe can be easily wiped by magnetism from say your mobile phone speaker, and that the contact nature of the reader means they are susceptible to wear much faster than the non contact RFID type.

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