Here's one you see every now an then -- like when you're running a program that will root your phone without you doing any command line work. In a nutshell, USB debugging is a method of opening up your phone to work with the Android SDK. You can have the SDK installed on your computer all you want -- plugging in your phone won't do anything with it until you've turned on USB debugging.
That's also one of our favorite causes of facepalms around here. If you want to take screen shots using the Dalvik Debug Monitor (which is how we end up with those cool little icons like you see in the top left here), or use the command line for adb access, you have to have USB debugging turned on. Otherwise, you get questions like "Why won't this damn thing recognize my phone?"
If you need to turn on USB debugging, press the Menu button, then Applications>Development.
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