An offset facility is a separate account linked to the mortgage, where the balance is offset daily against the loan amount.
For example: Jack and Mary owe $120,000 on their mortgage and have $20,000 in an offset account
This means the mortgage of $120,000 is reduced by the $20,000 in the offset account leaving a balance of $100,000. As a result interest is only calculated on $100,000. However repayments continue to be made on the entire $120,000. Therefore over a number of years, your loan is paid off faster, and you save interest.