Mostly, the loan analogy is really close- In a short, you agree to borrow a stock in exchange for paying interest to the owner for the time you've borrowed it. You sell the stock you've borrowed for the current price, thinking it will go down in value later, you can rebuy it to return, and pocket the difference (minus the interest).

They don't need to return the exact share that they borrowed, just an amount of shares equal to the amount that they borrowed. It's more like, Melvin said "Hey, we want to borrow shares of GameStop, does anyone have some we could borrow?" and Investor A says "Yes, we do, here." Then Melvin goes, sells the shares to Investor B, and says again "Hey, we want to borrow shares of GameStop, does anyone have some shares we could borrow?" and another investor, it could be Investor B, or it could be a different one, offers their shares to Melvin. With the number of shares that they have shorted though, they have definitely shorted some shares more than once.