The LAG() function is a powerful tool in SQL for performing calculations and comparisons based on the values of preceding rows. Imagine you have a table of sales data, and you want to calculate the difference in sales between each day. Without LAG(), you'd need a self-join or a subquery, which can become complex and less readable. LAG() simplifies this process by allowing you to directly reference the value from the previous row. It's crucial for tasks involving time series analysis, data comparisons, and creating running totals. The function takes the column you want to reference from the previous row, the offset (how many rows back), and optionally a default value if the offset is beyond the first row. This makes it incredibly versatile for various data analysis scenarios.