Think of base layer as the slow and expensive path to have a transaction settled, just like moving a precious metal from one place to another. Now, think of locking that metal to a magical box, and get paper notes, that are 1:1 pegged to it, and which you can transfer more easily, cheaply, and can be withdrawn any time for the metal. That could be a Bitcoin Layer 1, and Layer 2 analogy.

On-chain transactions don't equate with all transactions that happen within the system.