The design of any software-enabled product with special attention paid to solving the goals and needs of both the user and the business.
Here's an analogy.
Product designers are like the architects and interior designers planning a home. They design how people will use it, how it will look, and the goals it will accomplish for the owner, while also making sure the realtor will be able to sell it for a premium and in an easy way.
Why does it matter?
A product that is designed without paying attention to the user or the business goals won’t have any chance of success because, despite how beautiful it may look, it won’t improve anyone’s life.
How does it apply?
Product design is what brings digital products to life.