Mere mortals see only visible light, whereas security cameras can see both visible and infrared (IR) light. Many light sources including the sun create both visible and IR light. Security cameras use color filters (blue, green, and red) to create a color image but each filter also allows IR light to pass through onto the sensor, muddying the colors.
Since most lenses are designed for visible light only, most security cameras have an IR filter to block the IR light. This filter improves both the color fidelity and focus sharpness of the image.
But those cameras considered true day/night can physically switch the IR filter out of the light path allowing the camera to see both naturally occurring and artificially created IR light. These cameras require day/night lenses to keep the scene in focus both day and night.
Day/night lenses are generally more expensive because of the added complexity of focusing a broader color spectrum (from visible through IR) onto the sensor.
What is a true Day/Night camera?
A true day/night camera will have a movable IR filter. During day performance, the IR filter is in place blocking all the IR light, creating a nice color image. In this case, the IR filter (represented in brown on the chart above) will block all IR light greater than about 750nm.
At night, when the amount of light decreases, the IR filter is replaced with a clear glass dummy filter. The clear glass allows all available visible and IR light to reach the sensor and be recorded.
So removing the IR filter makes each pixel sensitive to IR light, improving the light sensitivity, but at the expense of color fidelity. To counteract the degraded color in night mode, the software for most day/night cameras de-saturates the colors creating a monochrome image.