A wide laser or light beam is first shot at the beam splitter. Reflection takes place as the beam hits the beam splitter, part of it reflects towards mirror 1 while the rest towards mirror 2. The two beams again reflect off mirror 1 and 2 and travel back to the beam splitter. The two beams that goes through the beam splitter will combine and form an interference pattern at the screen.
The interference pattern will appear as bands and each band represents 2 path length difference or 1 wavelength. That is because the crest of wave 1 has caught up with the crest of wave 2 (or the other way around), causing a constructive interference. If given the change in distance of the movable mirror and number of bands on the screen, we can easily calculate the wavelength of the light source.