Digital Assets Management (DAM) is a space to store and manage all kinds of media - images, documents, video, etc.
Before adding any media content to your pages, it must be stored and organized in your DAM folder. Upon initially entering DAM, you should see an identical folder structure to what you see in the Websites console; each site gets its own DAM repository.
Items stores in DAM are easily accessible from the Content Finder in Author mode, so that once you've added the file once you'll have quick access to it from any page you're editing.
Important Note: CQ Authors are only permitted to use items in their site's folder and in the "Common" folder. For more information, see the Photo Policies page.