Federalism is the idea that different regions or states of a country should be able to govern themselves, to a certain extent. These regions are all governed overall by a central government, called the ‘federal government’.
Hence, in simple words, Federalism is the division of a nation into several states or federations.
The USA is a key example of federalism: it is divided into a variety of different states, which all are given a certain amount of liberty by the central US government to make their own laws. The nature of Indian Constitution is also of Federal nature.
The importance of federalism is highlighted below.
1. Decentralization: Decentralization (the devolution of power from a central authority to several regional authorities) is a key political idea.
2. Respecting regional differences: Federalism recognizing local differences. It enables different regions to govern themselves in the way that best suits them.
3. Communication: When political authority is concentrated in a central point, communicating with the authority can be difficult for people who live far away from that central point. Federalism solves this problem.
4. Historical importance: Several countries, including India, have a rich history of federalism which informs their current politics. (Also read: Federalism in Indian Constitution)
5. Unity: Federalism unites several different regions under a central government.
6. Diversity: Federal governments support regional diversity.
7. Centrality: At the same time, federalism is governed by a central guiding principle. Federations enjoy a certain amount of freedom from central government (though, of course, all federations will have to conform to national laws).
Conclusion: With the autonomy and variety enables by a federal setup, it is clear why it is often a popular choice for larger nations.
Wikipedia link: https://en.wikipedia.org/wiki/Federalism