It's a data storage card to increase the capacity of the phone to store pictures, songs, apps, etc. It comes with 2.7GB but when I loaded ~500 songs from iTunes, I had no capacity left until I added a 16GB MICRO SD card (black Friday special at big online seller for $8 :) ) so now I have plenty of storage. FWIW, the SD card goes inside the battery compartment, not on the outside of the phone like many. That's a good thing because you really should never need to touch it again after installation and it's better protected from dust and dirt and even moisture.
A tiny memory chip that can extend the memory of the phone up to 32GB. The back cover of the phone needs to be removed to insert the micro SD chip.