Observability is the ability to understand what is happening inside a software system from the signals it emits: logs, metrics and traces, sometimes complemented by profiling and events.
Classic monitoring answers "is it working?" based on indicators defined in advance. Observability aims to answer "why is it behaving this way?", including for a failure nobody anticipated. It is essential in distributed architectures, where a single request crosses dozens of services.
Reference tools are Datadog, Grafana (with Prometheus, Loki and Tempo), Honeycomb, New Relic and Splunk. OpenTelemetry provides the standard instrumentation layer that feeds these tools.
Why it matters when hiring
Observability is at the heart of the SRE and Platform Engineer roles, and a good maturity signal in a back-end developer. In the interview, ask for the story of an incident: how the problem was spotted, which signals led back to the cause. A candidate who only talks about dashboards has often not led an investigation themselves.