Inflation is the slow rise of prices across the economy. When it runs at 3%, something that costs $100 today costs $103 next year and about $134 in ten years. The dollar bill did not change; what it buys did. The Federal Reserve targets about 2% per year, though recent years have run higher.
The effect on savings is quiet but large. Cash in a drawer loses about a third of its purchasing power over a decade at 3% inflation. A savings account paying 1% when inflation is 3% is losing 2% a year in real terms even as the balance grows. This is the reason for investing at all: to earn more than inflation so money keeps its worth.
Inflation also reshapes long plans. A retirement budget of $60,000 a year in today's dollars needs to be about $108,000 a year in 20 years at 3% inflation. The 4% rule handles this by raising withdrawals with inflation each year, which is why it needs a portfolio that grows.
Salary needs the same lens. A 3% raise in a 3% inflation year is a raise of zero. A 2% raise is a pay cut.
The common mistake is planning in nominal dollars, comparing a figure ten years from now with one today as if they were equal. Any long-range number, from a retirement target to a college fund, should be stated in today's dollars or explicitly grown for inflation.