The Lady who lives in the castle on the Island of Shalott spends most of her time weaving "a magic web with colors gay." She weaves steadily because she knows a curse will come upon her if she pauses to look toward the town of Camelot. In order to occupy her mind while she weaves, she has set up a mirror that hangs before her. Since the mirror faces her window, she can see reflections in it of people going to and returning from Camelot. She likes to watch these "shadows of the world appear" as she weaves. In fact, she makes the images she sees in the mirror the subjects of her tapestries; she recreates the life outside her window in her web. Some of the sights she sees include a group of young girls, an abbot on a horse, a shepherd, a page, pairs of knights, funeral processions, and two young lovers. As the poem opens, the Lady seems relatively content with her life: "little other care hath she." Farmers harvesting in nearby fields hear the Lady singing, but no one has ever seen her. Her dissatisfaction begins to grow when she sees the newlywed couple, and seeing "bold Sir Lancelot" motivates her to stop her weaving and look "down to Camelot." 

The lady spends her time weaving a tapestry.  She cannot look directly out the window, so instead she looks at the reflection of the items outside in a mirror.  Eventually she sees Sir Lancelot, and falls in love with him, but he does not know who she is. When she realizes that she cannot look out the window, she decides to put herself in a boat and float to her death.

On a side note, if you like this poem, you should read Meg Cabot's novel, Avalon High.