Collateralized Debt Obligations (CDOs) are financial instruments that pool together various types of debt, such as loans and bonds, and then sell them as a single package to investors. These debts are divided into different risk levels, or "tranches," allowing investors to choose how much risk they want to take on. Higher-risk tranches offer potentially higher returns, while lower-risk tranches provide more stability. Investors in CDOs receive payments based on the cash flow generated by the underlying debts. However, if borrowers default on their loans, it can affect the payments to CDO investors. This complexity was a significant factor in the 2008 financial crisis, highlighting the risks associated with these financial products.