Financial markets undergo constant evolution, so developing successful trading strategies requires equally constant iteration and innovation. However, releasing an unproven strategy into a live trading environment poses too significant a liability when real money is on the line. Backtesting is an indispensable tool that developers can take advantage of to limit this risk.
The concept of backtesting is straight-forward: feed historical market data into a strategy and measure how it performs. Here the assumption developers make is that good performance in the past implies similar performance in the future (and vice versa).