@Viktorian@beehaw.org has a good in-depth answer, but the TL;DR non-technical answer is that when you connect to a website, your browser requests the website data from the server the website is running on, which allows you to get information about this server like its location and service provider. This way, you can find out the identity of a website’s owner. With port forwarding, the website admin can pass the website data through Mullvad’s servers instead, so the it looks like the server running the website is Mullvad’s and the true identity of the host server is unknown. Law enforcement was pressuring Mullvad to reveal the information about the hosts of illegal websites, which Mullvad refused to give, so they decided to shut down this service instead.