Context
Context is everything the AI can see at the moment it answers: your message, earlier messages and any files you gave it.
In a simple example
If you paste your menu first and then ask for a poster, the AI uses the menu because it is in the context.
Why it matters to you
The AI cannot use what it cannot see, so adding the right facts gives much better answers.
Do not confuse with
Context is what the AI has in front of it now. It is not a lasting memory of past chats.