The process of establishing the necessary foundation to create a consistent, repeatable, and differentiated way to talk about your digital product and the value it provides to your target buyers.
Here's an analogy.
In the same way that you develop an elevator pitch to describe yourself in an interview, your product positioning should be a simple, repeatable, unique way to describe your product and its value.
Why does it matter?
Product positioning allows for consistency across all internal teams on how to explain a product, and allows for product features to be explained through the benefits they provide to the user.
How does it apply?
In a competitive market it is critical to make it clear to your potential buyer what your product does, why it matters, and how it is different from your competitors. A clear market position allows your digital product to cut through the noise.