I think Shaun answered it well. You have to deduct $1 from the price to know what you are giving up should the horse win (which would be a losing lay bet). In your case you would be losing $10 ($5 bet x $2 odds) but win $5 if it is a winning lay (the horse loses).

So laying $1 on a $10 horse would mean you stand to lose $9 ($10 odds-1) or win $1.

I wish I could describe it better. I hope you get the gist. You are basically winning a fiver from someone else who has bet on the horse to win. You are the bookie (less 5% of course) .