Until the Industrial Age, trading ships had pretty much carried the same goods around the world, year after year. But inventors had begun to experiment and develop simple machines and materials, which allowed the creation of more complicated machines and materials.
Many goods are produced in RGOs — Resource Gathering Operations is our generalised term for farms, logging camps, fishing ports, etc., where raw materials are gathered or mined by the lower working class. These raw materials were sometimes useful in their own right — coal, for instance. But others could be refined and turned into “manufactured goods.”
Some manufactured goods were made by Artisans — small shop-owners and entrepreneurs who made small quantities of things like nice clothing, which they could then sell and make a profit. Artisans are a class of the population in Victoria 2.
But anything that makes a good profit attracts the attention of Capitalists, or of the government, and either may decide to build factories. As factories begin to crop up, manufactured goods could be mass produced, and then sold on the World Market. The factory buys wool or cotton, for instance, and produces fabric. Another factory may then buy the fabric and make clothing.
The interconnected needs for raw materials and different types of processed goods creates a supply & demand framework which we use as the basis for both, the World Market and the incomes of our POPs (population units). Everything feeds everything else — as the POPs make money, they spend it to buy goods, which enables other POPs to make money and buy more goods!
These goods are also necessary to produce other things, like factories, railroads or military units. You must have these things on hand, or else production of these critical items cannot proceed!
And, as a byproduct of all this, countries have an incentive to bypass the middleman and use those military units to take over lands that produce goods they need. Resources can become a spark for either wars or colonisation, as happened on many occasions during these years.