MP3 is a revolutionary digital audio format developed in the late 1980s and brought to the mainstream through the Internet in 1997.
MP3 is short for MPEG Layer - 1 , where MPEG stays for Moving Pictures Experts Group, which is the group that help make MP3 an international standard. What makes MP3 so important? Basically it had been the first format which allowed to reduce up to one tenth the size of an audio file.

In PCM Wav audio format (the same format used by standard audio CDs), one minute of stereo music takes about 10-12 megabytes of space, while with MP3 compression scheme, it can fit in about one megabyte!

MP3 is a lossy compression scheme, which means that it achieves this amazing space saving, throwing away part of the infrmation of the sound file, hopefully the part that human ear is not able to get.
That's why some audiophiles prefer other audio file formats, like FLAC which uses a lossles compression scheme, which saves less space than MP3 but provides the same quality of the audio CD.

MP3 format dues its popularity to its practical uses: music tracks in WAV format are extremely large in file size, so it is not practical to send them through email or offer them for download on the Internet. MP3, however, compresses WAV audio on average of 10 times smaller than the original size. The result is audio tracks around 3 to 4 MB in size, perfect for downloading and sending through the Internet. Thus, custom MP3 format CDs can be created with 10 times the amount of tracks of a normal 12-15 track audio CD, producing CDs with over 100 tracks easily. The format is also popular for turning your PC into a jukebox of hundreds or thousands of songs or loading them into a portable mp3 player and taking your music collection wherever you want.