SegWit moves transaction witness data into a separate serialization structure. It fixes third-party transaction malleability for SegWit spends and increases effective block capacity through a weight-based limit.
Before SegWit, a transaction identifier could be changed without invalidating the payment. Stable transaction IDs made pre-signed chains of unconfirmed transactions safer, an important foundation for Lightning channels.
SegWit was deployed as a soft fork. Older nodes could continue to follow the chain without understanding the new witness rules, while upgraded nodes enforced them.
For the clearest picture, read this entry together with Transaction, Transaction Fees, Lightning Network, Taproot. The reverse links also lead from Transaction, Transaction Fees, Taproot, Lightning Network.
Activated 24 August 2017
Fixes third-party transaction malleability
Introduces block weight
Enabled safer Lightning construction