SKU stands for Stock Keeping Unit. It should be a unique set of characters which will not match to any other product.
For example, A seller has 7 pieces of the product and the doesn't want to receive after orders are placed for the 7 units of products. If you enable stock management and enter 7 in the quantity field, then after 7 units are ordered, this product will show a message that all the quantities are sold and there is no stock.
But, you might want to take some pre-orders before your next batch comes up. So you can Allow Back Order to let the customers place orders even if the product is out of stock.