A blurry image happens when the light from the thing you want to see (or take a picture of) is coming in from a bunch of directions and angles. Lenses fix this by bending the spread out light and focusing it. Pinholes work by blocking out the light that isn’t coming in from a particular angle. It’s getting rid of the extra light that leads to a blurry image.
[Here’s a great Minute Physics video about it](https://youtu.be/OydqR_7_DjI)
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