As the name suggests, it's the context of current state of the application/object. It lets newly-created objects understand what has been going on. Typically you call it to get information regarding another part of your program (activity and package/application).
You can get the context by invoking getApplicationContext(), getContext(), getBaseContext() or this (when in a class that extends from Context, such as the Application, Activity, Service and IntentService classes).
Typical uses of context:
Creating new objects: Creating new views, adapters, listeners:
TextView tv = new TextView(getContext());
ListAdapter adapter = new SimpleCursorAdapter(getApplicationContext(), ...);
Accessing standard common resources: Services like LAYOUT_INFLATER_SERVICE, SharedPreferences:
context.getSystemService(LAYOUT_INFLATER_SERVICE)
getApplicationContext().getSharedPreferences(*name*, *mode*);
Accessing components implicitly: Regarding content providers, broadcasts, intent
getApplicationContext().getContentResolver().query(uri, ...);