it decreases the amount of light that enters your eye. So if its too bright to see something, now less light is hitting your eye, so its not as bright.
Additionally, decreasing the area over which light enters your eye (or any lens) increases its depth of focus which allows you to see things that your eye otherwise could not focus on.
Depends on who you choose to believe, it either changes the shape of your eyeball / eye lens very slightly, shifting how things get focused, or the reduction of the amount of light that enters your eye cuts down on how much *out of focus light* reaches your retina.
The latter part is hard to explain without drawing diagrams and explaining concepts like focal planes… (here is one example that shows how you get a fuzzier image with a larger pinhole/aperture [https://www.schoolphysics.co.uk/age11-14/Light/text/Pinhole_camera/index.html](https://www.schoolphysics.co.uk/age11-14/Light/text/Pinhole_camera/index.html), the illustration isn’t great but the idea is that with the bigger pinhole, you get multiple images of the object)
(You can duplicate the effect without squinting by making a tiny circle with your fingers and looking through it, the image will be dimmer but sharper. That’s because by decreasing the “aperture” you’re making sure only the light that is best focused by your lens is reaching your retina, the out-of-focus beams reflected off of whatever you’re looking at are mostly excluded.)
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