Short version: Anchor text is the visible, clickable text of a link.
It matters because it sets expectations before the click. Clear anchor text tells visitors what they will get on the destination page and gives search engines context about the relationship between pages. For example, a link that says pricing strategy is usually more useful than a vague link that only says click here, unless the surrounding sentence already makes the destination obvious.
Good anchor text is descriptive, concise, and natural in the sentence. It should not be overloaded with repeated exact-match keywords, because that can look manipulative and make the page harder to read. On a website, anchor text is also part of information architecture: internal links help users and crawlers understand which pages belong together.
Related terms: backlink, SEO, and URL structure.