In more detail
Terms run from a few months to several years, and longer terms usually pay more. The rate is locked for the whole term, which protects you if rates fall but leaves you behind if they rise. Withdrawing early usually costs a penalty, often a set number of months of interest, which can eat into the principal on a short holding. In the US, CDs at insured banks are covered by FDIC deposit insurance up to $250,000 per depositor, per bank, per ownership category. Compare CDs by APY, which includes compounding.
Why it matters
A CD suits money you know you will not need until a set date. Locking in the whole emergency fund can turn an emergency into a penalty, which is why many people build a "ladder" of CDs maturing at different dates.
Example
$10,000 in a 2-year CD at 4.50% APY grows to 10,000 × 1.045² = $10,920.25. A ladder splits $10,000 into five $2,000 CDs of 1 to 5 years; each year one matures and is reinvested at the 5-year rate, so some money is always about to become available.