Very simple. Under EU regulations, Royal Mail was opened up to competition. IDEALLY this would be competition on a level playing field, in that they delivered too, but this isn't the case and in my opinion has contributed to the decline of RM's service.
Anyway, private firms can approach big companies and say "we will deliver your mail for the cost of x an item", then they take this mail, and again under EU regulations, because that company doesn't have the facility to see delivery through to the destination, they can put it in with Royal Mail deliveries for the final journey, for which Royal mail get a token amount.
It's a bit like Sainsbury.s letting shelf space where they could otherwise put their own stuff to sell Tesco stuff.