Cell references are the method by which you can refer to a specific location within Excel. They take the form "A1", where the letter refers to the column, and the number refers to the row. These references are used in formulas.
Sometimes you will want to write formulas that refer to adjacent cells e.g. you may wish to sum 12 columns of monthly data to provide an annual total. You may wish to repeat this calculation for 100 different rows. If Excel required you to manually enter a different formula in each and every cell, it wouldn't be the world's most popular spreadsheet package. Therefore Excel allows you to refer to cells by their local environment. This is a relative reference.
Sometimes this isn't of much use because you need to refer to a global variable e.g. an interest rate. These global variables require an absolute cell reference so you can change the output cell without changing the input cell.