The ERC20 Token Standard is a set of 8 functions to be included (in an agreed upon language) in a smart token contract in order to enable interoperability across multiple interfaces and dapps. These functions relate to (1) how tokens can be transferred (2) how to access data about the token, and (3) how to format key events like transfers and approvals. ERC stands for Ethereum Request for Comments.
The documentation of the ERC20 standard describes it as
This standard provides basic functionality to transfer tokens, as well as allow tokens to be approved so they can be spent by another on-chain third party.
A standard interface allows any tokens on Ethereum to be re-used by other applications: from wallets to decentralized exchanges.