The eye is meant to image a point of light, for example a star, as precisely as possible on your retina so that you perceive it as, well, a point. And objects, like the text you try to read, will appear sharp if each of their individual points is imaged as a point.

Looking at a bright star without your spectacles you get an idea of how your eyes fail at that task: what should be a point is smeared out in various ways (depending on what opticians call aberrations of the optical system, or how well your eyes can focus, or both). This means that different rays of light (from the same star) entering different parts of an eye are sent not to the expected focus point but slightly nearby, and together adding to a blurry image of what should be a point.

Now by looking through a tiny gap you cut out most of these rays, which makes the blurry patch smaller, more like a point, and improves the sharpness of your vision.

Of course there are limits to that "stopping down": the image gets dimmer and, with a really small gap, the wavy nature of light actually starts increasing the blur again.