A funnel is a series of pages through which a visitor must pass before reaching the goal conversion. The name comes from a graph of visitors who reach each page - the first page counts the most visitors, and each successive page shows less visitors as they drop off before reaching the final goal.
The purpose of tracking these pages is to see how efficiently your pages direct visitors to your goal. If any of the funnel pages are overly complicated, or not designed to be user-friendly, then you will see significant drop off and lower conversion rates. You can track drop-off rates on pages leading to a goal using the Funnel Visualization report in the Goals section.
You can choose to make the first step in the funnel mandatory, by selecting the 'Required step' checkbox next to the funnel. If this checkbox is selected, users reaching your goal page without traveling through this funnel page will not be counted as conversions. Only users who reach the goal URL after viewing this first page will be counted as conversions. You can view the Funnel Visualization report for data on the funnel path. For example, if you are tracking user flow through your checkout pages, do not include a product page as a step in your funnel. Note that the 'Required step' checkbox only affects the Funnel Visualization report. It does not keep a goal from showing a conversion in any other goal report.