The software you download for your Mac in a DMG format can be opened like any other file on a Mac, and then the setup program can be run to install the software. A DMG file is 'mounted' as a drive and is treated by the operating system as if it were a physical hard drivemaking it really easy to view its contents.
This macOS disk image format supports compression, file spanning, and encryption, so some DMG files might be password protected. You'll most likely only see them when downloading macOS software from the internet. For this reason, a DMG is often the file format used to store compressed software installers instead of having to use a physical disc.
