Index funds are passively managed, meaning they track an established market index. One example is the S&P 500 which invests in 500 of the largest companies in a range of industries. Another example is the Dow Jones Industrial Average, "The Dow", which shows how 30 large, publicly traded companies have traded. Usually, reporters use The Dow to exclaim how good (or bad) the market is doing.
Why It's Important
Index Funds offer broad market exposure at a low cost. Because they are passively managed, their fees are lower than actively managed funds. When it comes to performance, index funds generally beat actively managed funds over the long-term.