In plain English
It identifies the business to the federal government the way a Social Security number identifies a person. Applying is free and is done directly with the IRS.
Banks ask for it to open a business account. Suppliers ask for it on credit applications. Payroll and most tax filings require it.
Example
You form an LLC, apply for an EIN with the IRS, then use that number to open the business bank account.
Why it matters
Without an EIN you end up running business money through personal accounts, which blocks credit, terms and clean books.
COMMON MISTAKEPaying a third-party site for an EIN. The IRS issues it at no cost.