There are three main kinds of blood vessels: arteries, capillaries, and veins.
Arteries are large blood vessels that carry blood from your heart to the rest of your body. This blood is rich in oxygen and nutrients. As arteries get farther away from the heart, they begin to branch, and become smaller and smaller.
The smallest branches are called capillaries. Here, oxygen is transferred from the blood into your cells. In exchange, the wastes from your cells--including carbon dioxide, or CO2--are transferred into the blood.
Just beyond this area, the capillaries begin to merge together and eventually form larger vessels, called veins, which lead back to the heart. As veins carry the CO2-rich blood back to the heart, other organs filter out and dispose of the waste products.
As the deoxygenated blood makes its way back through the heart and lungs, it picks up oxygen and nutrients, and releases the CO2 into the air you breathe out. The heart then pumps the blood out through the arteries, and the cycle is repeated.