In more detail
Traditional contributions reduce taxable pay now and are taxed as income on withdrawal; Roth 401(k) contributions are taxed now and qualified withdrawals are tax-free. Many employers add a match, such as 50 cents per dollar on the first 6% of salary, which may "vest" (become yours) only after a set period of service. The yearly contribution limit is set by law and usually rises with inflation, and withdrawals before age 59½ generally owe an extra 10% tax unless an exception applies. See How Retirement Savings Work.
Why it matters
The match is an immediate return on your money, so contributing less than the amount needed to capture it leaves pay on the table. Fees inside the plan and leaving a job before the match vests both reduce what you keep.
Example
On a $60,000 salary, contributing 6% puts in $3,600 a year and a 50% match on that 6% adds $1,800. Investing $5,400 a year at 7% for 30 years grows to about $510,088; without the match, $3,600 a year grows to about $340,059. If your marginal rate were 22%, the traditional contribution would also cut that year's income tax by $792.
Common confusion
A 401(k) is run by an employer; an IRA is an account you open yourself. You can often have both.