Your home directory is where you can store all the files and directories that are relevant to you. It's a good place to store your own binaries and scripts.
Your entry in the password database specifies your home directory (see /etc/passwd in Managing User Accounts), and the HOME environment variable stores this directory's name.
Your home directory is also where you store information that configures your environment when you log in. By default, applications pick this spot to install configuration files. Configuration files are generally preceded by a period (.) and run either when you log in (such as .profile) or when you start an application.