As defined by Wikipedia:
A compression release mechanism works to ease the starting of internal combustion engines by allowing them to spin up to starting speed without having to work against the pumping action of the pistons. It does this through a release valve that is incorporated within the cylinder head that vents the cylinder pressure to the outside atmosphere until the engine has sufficient momentum to overcome it. At that point the valve closes and the ignition is engaged.
Basically this lets your bike start easier. Be it by foot or by starter motor. This is especially important on high performance large displacement bikes like Big Dog and other S&S engine based custom bikes.
When yours goes bad here is the tool to replace the compression release valve