An iToken(eg. iDAI or iUSDC) is a representation of your funds in the pool and the interest they've earned. The redemption value of iTokens continually increase from the accretion of interest paid into the lending pool by borrowers. You can sell iTokens on Uniswap, DEXs, or exchanges to exit your position. You can also use them as collateral wherever applicable.
Read more about iTokens here