It provides apps with an opportunity to refresh their content at certain intervals, at iOS's discretion. However, apps need to support this explicitly to make use of it.
The idea is that apps are refreshed when you open them, whilst saving battery life, since it is the os determining whether an app can refresh itself or not.
It's not needed to receive notifications, but some notifications may also trigger a background refresh - so that the app already has its latest content fetched by the time you tap the notification.