Gauge refers to the number of stitches and rows a knitter or crocheter makes per inch using a certain yarn and needles or hook. Gauge varies from person to person, so it is very important to make sure you are achieving the gauge of your pattern. Your gauge determines the size of your finished piece.
If you don't get the proper gauge, the garment will not come out to the intended size.
If you are knitting with a thick yarn like Wool-Ease Thick and Quick you'll make bigger stitches and have very few stitches and rows per inch. If you are knitting with a finer yarn, you'll make smaller stitches and have more stitches and rows per inch.
To make an accurate gauge swatch, cast on or chain enough stitches to equal approximately four inches and work in pattern for four inches. Take your stitches off the needle and, without stretching the fabric, place a tape measure on your work and gently pin where the tape measure reads one inch.
Count your stitches. Don't cheat. Make sure to count even a half or quarter of a stitch and include that into your gauge.
If you have more stitches per inch than the gauge suggests, that means you are working too tightly; try a larger needle or hook. If you have fewer stitches than the suggested gauge, your stitches are too loose; try a smaller needle or hook.