In more detail
Under the World Handicap System the differential is (113 / slope rating) × (adjusted gross score − course rating − PCC). The course rating is what a scratch golfer is expected to shoot; the slope rating (55 to 155, with 113 as the standard) says how much harder the course plays for a higher-handicap golfer; PCC is a small playing-conditions adjustment, usually 0. The adjusted gross score caps each hole at net double bogey, so one disaster hole does not wreck the record. A 90 on a course rated 72.3 with slope 130 gives (113 / 130) × 17.7 = 15.4.
Why it matters
Your Handicap Index is the average of the lowest 8 of your most recent 20 differentials (fewer when you have fewer rounds), so it reflects your potential rather than your typical round. Before play it is converted into a course handicap for the specific tees: index × slope / 113 + (course rating − par). Using the index directly on a hard course gives you too few strokes.
Example
Twenty recent differentials whose lowest eight are 11.6, 12.9, 13.1, 13.8, 14.2, 14.7, 15.0 and 15.4:
Handicap Index = 110.7 / 8 = 13.8375 → 13.8
Course handicap = 13.8 × 130 / 113 + (72.3 − 72)
= 15.88 + 0.3 = 16.18 → 16 strokes