It's basically additional information about a file. The file could most likely be used without much of it but it helps in terms of organising and searching. Different systems and applications can use varying amounts of it. Most digital jukeboxes support MP3s using ID3 have all the genre/album etc metadata included. Not all photo organisation software uses the camera information appended to digital images.
Every file has some additional data with it - created and modified dates are probably the most basic information. Author and creating applications are other basic examples.