Simply put, it is keeping track of where “stuff” is by tracking where it shows up along a linear network. For instance, a traffic sign may be known to exist at a point 45.3 miles from the start of Highway 101. For transportation agencies that track hundreds of types of information about their transportation network, linear referencing is an integral part of their information infrastructure. It is the “where” of their information.
For a detailed writeup on linear referencing, Phil Hardy, the LRS Product Manager for Agile Assets, wrote a detailed document that may help.