In short
Traceability is the ability to follow, through records, which materials, processes, equipment and people a product or batch passed through from raw material to customer.
Backward traceability shows which raw material batch a defective product came from; forward traceability shows which products and customers a defective raw material batch reached.
In regulated industries such as food, pharma, chemicals and automotive, traceability is often a legal or customer requirement. In a recall it lets you narrow the affected scope quickly.