In more detail
WCAG 2 computes the relative luminance L of each colour: every sRGB channel is linearised, then L = 0.2126 R + 0.7152 G + 0.0722 B, from 0 for black to 1 for white. The ratio is (L lighter + 0.05) ÷ (L darker + 0.05). Level AA needs at least 4.5:1 for normal text and 3:1 for large text (24 px, or about 18.7 px bold); AAA needs 7:1 and 4.5:1. Icons, input borders and other essential non-text graphics need 3:1.
Why it matters
Low-contrast text is hard to read for people with low vision, older users and anyone on a phone in sunlight. Contrast is also a legal accessibility requirement for many public-sector and commercial sites. Light grey placeholder text and pale brand colours are the usual failures, and they often miss the threshold by a hair.
Example
For #767676 on white, each channel is 118 ÷ 255 = 0.463, which linearises to 0.181, so L = 0.181. The ratio is (1 + 0.05) ÷ (0.181 + 0.05) = 4.54:1, a pass for AA body text. One step lighter, #777777 gives 4.48:1 and fails. Black on white is the maximum, 21:1.