It is the easiest way to tell if your mouse jitters or is modifying the input (prediction). Lets take a look at me testing my mouse at 8200DPI since the higher DPI can exemplify the nasty stuff.
The highlighted circle showing the possible jitter is probably the easiest to explain. If you look close notice how the general line is going down/right, but there are parts where it goes up, and then down, and then up again. This could possibly be classified as jitter, but within the context of way over the top DPI it is actually pretty damn good.
Here is an example of extreme jitter.
Prediction can be described as the opposite of jitter, it is the mouse purposely trying to straighten the line out even if the actual input does indeed have slight variations in it. Also known as angle snapping and drift control, it helps draw straight lines at the expense of accuracy. You can tell there is no prediction from the highlighted area. The line very gradually slopes downward until it evens out, and very smoothly curves upward again. If there was prediction, it would go slowly down (possibly in a staircase pattern) and abruptly start drawing a flat line, then abruptly start sloping up again.
While jitter is always bad, some professional players actually prefer prediction although with the current "flawless sensor" push, I would expect the majority of gaming mice to start disabling this.