Would you prefer to receive 1000 USD now or in one year? I guess now. So basically the 1000 USD in one year have a "smaller" value than 1000 USD now.
Let's build on that.
If I give you 1000 USD now, you could invest them, say at 5%.
So in one year you would have 1050 USD. This means that having 1000 USD now is the same as having 1050 USD in one year.
In formulas: 1050 USD in one year are equal to
1050 USD/(1+5%)^1 year
1050/(1+0,05), which gives 1000 USD as a result. The NPV of 1050 USD in one year is equal to 1000 USD now.
But what happens in two years?
If I give you 1000 USD now, then you could invest them at 5% rate per year. At the end of the first year you would have 1050 USD (see above), and at the end of the second year 1050*(1+0,05), or 1102,05 USD.
This means that 1000 USD now are like 1102,5 in two years. The discount rate of 5% must be applied for two periods, so 1102,5 USD/(1+5%)^2, or 1102,50/(1,05)^2, or 1102,50/1,1025 - equal to 1000 USD.
I hope this helps!