A new organism starts as a single cell, which divides again and again. As the organism develops, its cells differentiate to form different types of cell. When a cell differentiates it acquires different sub-cellular structures, which let it carry out a certain function. It has become a specialised cell.
Differentiation is important because it lets an organism have many types of cell. Each specialised cell can do one job well, and the cells can be arranged into tissues and organs that work together.
Most types of animal cell differentiate at an early stage. Many types of plant cell keep the ability to differentiate throughout life, which is why plants can keep growing new roots and shoots. In mature animals, cell division is mainly restricted to repair and replacement, for example to mend a cut in the skin.
Cells isolated at an early stage of growth, before they have become too specialised, can still grow into a range of different types of cell. This has led to stem cell technology, which lets doctors repair damaged organs by growing new tissue from stem cells.