You're not alone; this confuses a lot of people.
Here's how I like to think of it.
A variable is a storage location.
A variable can store something of a particular type.
There are two kinds of types: value types and reference types.
The value of a variable of reference type is a reference to an object of that type.
The value of a variable of value type is an object of that type.
A formal parameter is a kind of variable.
There are three kinds of formal parameters: value parameters, ref parameters, and out parameters.
When you use a variable as an argument corresponding to a value parameter, the value of the variable is copied into the storage associated with the formal parameter. If the variable is of value type, then a copy of the value is made. If the variable is of reference type, then a copy of the reference is made, and the two variables now refer to the same object. Either way, a copy of the value of the variable is made.
When you use a variable as an argument corresponding to an out or ref parameter the parameter becomes an alias for the variable. When you say:
void M(ref int x) { ...}
...
int y = 123;
M(ref y);
what you are saying is "x and y now are the same variable". They both refer to the same storage location.
I find that much easier to comprehend than thinking about how the alias is actually implemented -- by passing the managed address of the variable to the formal parameter.
Is that clear?