Tokens are units of value that blockchain-based projects develop on top of existing blockchains such as Ethereum. While tokens often share deep compatibility with the cryptocurrencies of that network, they are a wholly different digital asset class.
Cryptocurrencies are the native asset of a specific blockchain, whereas tokens are created by projects that build on top of those blockchains. While ether (ETH) is the currency native to Ethereum, there are many other different tokens that also utilize the Ethereum blockchain. Crypto tokens built using Ethereum include NFT's, DAI, LINK, USDC, etc. These tokens can serve a multitude of functions on the platforms for which they are built, including participating in DeFi, representing art, and even playing games. All these tokens use Ether as a transactional currency between two participants. If I send, USDC (USD-backed stable coin) to my friend X, I pay transaction fees in Ether.
Tokens can be designed to represent physical assets or traditional digital assets, or a certain utility or service. For instance, there are crypto tokens that represent tangible assets such as real estate and art, as well as intangible assets such as electricity, processing power, or data storage space.