A keyword is what someone types into the search box. In its explanation of ranking, Google calls it the most basic signal that information is relevant: the content contains the same words as the search. At the same time, Google writes that its systems understand synonyms and so also find pages that do not use exactly the same words.
Why does it matter?
Google recommends in the SEO Starter Guide that you think about how different people search. A specialist and a layperson often use different words for the same thing. If you know your customers’ words, you can write your pages in their language.
Example
Suppose a heating company keeps writing “heating appliance replacement” on its website. Customers search for “new boiler” or “boiler replacement cost”. By using those words in the title, heading and text, the page fits better with what people type.
Common mistake
Repeating a keyword as often as possible. Google calls filling a page with keywords to manipulate rankings keyword stuffing, a violation of its spam policies. Use the word where it fits naturally, and above all answer the question behind it. See search intent.
More in Researching customer questions and keywords: a step-by-step guide and under long-tail keyword.