The equation you wrote down describes the case for a narrowband (flat fading) MIMO system.
Narrowband/flat fading describes the scenario when your signal bandwidth is small relative to the channel bandwidth (inverse delay spread). Whatever system you are modeling, you'd have an idea of the delay spread and signal bandwidth, and could use that as a justification for using the model: $\mathbf{y}=\mathbf{Hx}+\mathbf{\epsilon}$.
In the frequency domain, use this picture to understand why it is also called flat flading. All frequencies in the signal will experience the same channel, that is, the channel response is "flat" over all frequencies (blue signal). This is opposed to wideband or frequency selective fading, which would correspond to the orange signal in the picture. The term OFDM is often times used when talking about this equation because the main idea of OFDM is to split up the signal into smaller subchannels so that each subchannel is flat (imagine splitting the orange signal into a bunch of smaller bandwidth slots like the blue one).
You can also look at this same thing in the time domain. Remember what a constant in frequency domain means for time domain, an impulse. For the narrowband case, even if there are multiple taps in the channel (never going to be exactly a flat channel response), if they all lie sufficiently within a symbol period then those energies get combined in the end. This is why the model equation does not contain any dependence on previous transmitted symbols. But in the wideband case, the multiple channel taps are sufficiently dispersed so that even after sampling at the symbol instants, there is energy from different symbol interfering with each other. For this case, using the model: $\mathbf{y}=\mathbf{H}\mathbf{x}+\mathbf{\epsilon}$ is not appropriate.
MIMO stands for multiple input multiple output, and in a communication system context this means multiple transmit antennas and multiple receive antennas. The picture to have in your mind is that the transmitter uses multiple antennas to input signals into the channel, and the receiver uses multiple antennas to get the output signals from the channel.
You also mention Rayleigh as an unknown. The matrix $\mathbf{H}$ is a $N_{RX} \times N_{TX}$ matrix with entries that are zero mean complex Gaussian. The term Rayleigh fading comes up because the distribution of the magnitude squared elements, $|h_{ij}|^2$, follows the Rayleigh distribution.