Conversion tracking is a tool that allows you to count how many conversions you have received after users have clicked on your Ads.
Conversion tracking allows you to better evaluate your Return on Investment and understand what a valuable action on your website is.
Conversions are anything you consider to be valuable to your business and in need of tracking or tallying when an action of value is performed.
Common conversions for websites are:
Sign-up – such as a newsletter sign-up
View of a key page – such as a contact page or landing page
Other – such as downloading a promotional ebook off of your website
Conversion tracking also helps to understand where your customers are converting. It is essential for understanding the particular keywords, Ads and campaigns that are driving conversions on your website and which need improvement.
It can help to assess whether or not you are meeting goals for things such as sales, leads, and website visits.
It can also help to understand which campaigns are working and which aren’t and optimize those that aren’t to better fit your business goals.
Source: About conversion tracking