It is a subscription system that gives access to play online on Xbox, Xbox 360, Xbox One and/or Xbox Series consoles.
The service provides access to 2 free downloadable games per month that can be played as long as you pay the subscription. Members also have access to some bonuses and discounts.
It is necessary to access this service to save game backups on Microsoft servers. When they are registered at Microsoft, it allows to share them more easily between consoles, and it allows not to lose your progress in case of breakage or loss of the console.