Soros sold shorts against the British pound, essentially, betting that it would fall in value.
The Bank of England tried to keep the value of the pound high enough to stay within the 'allowed band' of the ERM by buying up the excess pounds (and the bullish side of Soros' short contracts) on the open market, using their foreign currency reserves. If the bank had allowed the pound to fall instead of trying to prop it up though, Soros wouldn't have had a buyer. Moreover, if Soros had lost his nerve or his solvency selling shorts before the BoE ran out of reserves, the pound would have stayed high and he would have lost his shirt fulfilling the contracts.
Once Soros sold his contracts, he stood to lose if the value of the pound stayed high. The Bank of England could keep it high even after their attempts to buy up pounds had failed, by drastically raising interest rates and keeping them high. That would have thrown the British economy into a recession so Soros was betting that the BoE wouldn't go through with it.
In the end, the BoE didn't have the nerve to jack interest rates, so they let the value of the pound fall out of the ERM-allowed band, and Soros was able to fulfill his contracts with cheap pounds and pocket the difference.
They did try to jack the interest rates (full disclosure: I'm British and I had a bank account at the time :) -- the base rate rocketed by roughly 1% one day, then 2% the next. Then they chickened out and pulled the eject handle on the ERM, and cut the base rate back to where it had been before Soros' assault.
That was the moment when it became obvious that the next government would be a Labour one. (And the reason Labour instantly hived the BoE off as an autonomous entity.)
The Bank of England tried to keep the value of the pound high enough to stay within the 'allowed band' of the ERM by buying up the excess pounds (and the bullish side of Soros' short contracts) on the open market, using their foreign currency reserves. If the bank had allowed the pound to fall instead of trying to prop it up though, Soros wouldn't have had a buyer. Moreover, if Soros had lost his nerve or his solvency selling shorts before the BoE ran out of reserves, the pound would have stayed high and he would have lost his shirt fulfilling the contracts.
Once Soros sold his contracts, he stood to lose if the value of the pound stayed high. The Bank of England could keep it high even after their attempts to buy up pounds had failed, by drastically raising interest rates and keeping them high. That would have thrown the British economy into a recession so Soros was betting that the BoE wouldn't go through with it.
In the end, the BoE didn't have the nerve to jack interest rates, so they let the value of the pound fall out of the ERM-allowed band, and Soros was able to fulfill his contracts with cheap pounds and pocket the difference.