This is a way of telling a search engine that this is the master 'copy' of a page. For example, you'll quite often have your homepage URL and a copy of that homepage URL with /index appended. Without a canonical tag, a search engine will identify these as two unique pages with the same copy. This is unlikely to hurt your organic rankings in modern times but it's best to include a canonical tag within theof every page anyway.
Whilst duplicate content avoidance is a good reason, the real reason you should include a canonical tag is because of links. If a webmaster uses the /index URL of your homepage to link to you from his/her website, and no canonical or redirect is in place to the master copy of the homepage from the /index page, the authority/link equity will be passed to /index and not to the master copy that you'd like to have rank well.
There are several ways to arrive at a webpage. You might know the URL and type it in, which would be the direct channel. Maybe you're reading an article and you follow a link from within this. That'd be a referral. Then of course, you can use a search engine, and either choose an organic or paid option to navigate to a webpage.
The reason i'm rattling these well known channels off is because a lot of my clients and even some of my coworkers place far too much emphasis on the organic channel when undertaking organic search optimisation. That sounds dumb but let me explain.
The reason I say this is because following the October and December 2017 Google updates (not confirmed but felt by many) I noticed that two of my clients that had been especially negatively impacted put massive amounts of marketing budget into Pay Per Click or Display advertising, or had competitors that did.
The first of these clients had spent next to nothing on display advertising in 2016 and had ranked extremely well organically for very generic, competitive keywords. In 2017, they were receiving over 200,000 sessions per month from display advertising and their organic rankings went to shit. And here's why I think that is.
It was great that they were suddenly getting 200,000 more sessions each month, but the conversion rate was a full TWO PERCENT lower than for direct, organic and PPC. Similarly, the bounce rate and time on site from this channel was equally abysmal when compared to the other channels. Now, if i'm a Google engineer writing the ranking algorithm, i'm absolutely going to include something that considers a user's satisfaction from ALL channels; not just organic. So you see my point. It'd be a pretty major signal to Google if you start getting massive amounts more traffic, but most of it doesn't convert and leaves immediately after landing.
The second client is similar, only they spend next to nothing on PPC compared with a competitor who spends millions per year. Prior to the October and December 2017 'updates', this had never seemed to impact my client's organic rankings, and they had for the past three years ranked ahead of said competitor for all generic, competitive terms. Following December however, the organic rankings tanked. So I believe that competitor has a very well optimised PPC campaign, which continues to return a good ROI, and for this reason, users contine to buy and the competitor continues to invest heavily in that channel.
From Google's perspective, they're seeing this as a major signal of good user experience, compared with my client, who likely gets significantly less sessions. This is likely also the reason that brands who invest heavily on television advertising (or print/radio) tend to rank well organically. Large numbers of sessions/users already know what to expect of the brand when landing on the site, and are therefore more likely to stay and convert. Google sees this as good overall user satisfaction and rewards the site with high organic ranking positions (given all onpage technical factors are optimised).
My theory is that when Google released the October/December updates, their machine learning algorithms had, at that point, been fed enough user satisfaction data to be self-learning and able to determine organic ranking positions less so on the basis of link equity, and more so on user satisfaction metrics. This, I believe, is why Gary Illyes not so long ago stated that the three main ranking factors are now links, content and RankBrain. So the take away is ensure all channels are optimised and spend marketing budget on brand building/awareness where possible.