In more detail
UTM stands for Urchin Tracking Module. There are five parameters: utm_source (where the visitor came from), utm_medium (the type of channel), utm_campaign (the campaign name), and the optional utm_term and utm_content. They are ordinary entries in the Query string of a URL, so they travel with the link and are read by analytics tools such as Google Analytics when the page loads.
Why it matters
Without tags, a visit from a newsletter, a social post and a paid ad can all be reported as the same source, or as direct traffic. Consistent tags let you compare channels and see which campaign actually drives visits. Because the data is only as good as the naming, a written convention matters more than the tool.
Example
https://example.com/spring-sale?utm_source=newsletter&utm_medium=email&utm_campaign=spring_sale records a visit from the newsletter, through email, for the spring sale. Build tagged links with the UTM Link Builder.
Common confusion
UTM tags only track traffic arriving from outside. Putting them on links inside your own site can overwrite the true source and break attribution. They are also visible in the address bar, so they should never contain personal data.