The soil's ability to hold water available to plant roots, determined by texture (clay retains most, sand least) and improved by organic matter.
Some soils hold water well (clay, organic-rich); others drain too fast (sand). Water retention is determined by soil texture and organic matter. Clay soils retain water but can become waterlogged. Sandy soils drain too fast. Adding compost improves water retention in sand and workability in clay. The goal is field capacity: soil holds adequate water but drains excess.
Understanding water retention helps you choose watering frequency and amend appropriately. Sandy soils need more frequent watering; clay soils less frequent.