Scaleable Vector Graphics is what it stands for. It is just one of many vector file formats out there – but it is the one most widely supported by popular hobby cutting machine software.
Vector images are made up of outlines – they are the maths for the outlines, rather than all the lil square pixels to make up the image. Your machine can interpret the lines to follow to cut.
If you give cutting machine software a raster/bitmap file like a PNG or JPG it has to guess where the edge should be, as they are made of little squares of colour (pixels) sometimes it guesses ok … sometimes it doesn’t and the edges are rough, wonky or just wrong. It’s more obvious with straight line type designs.
So it is better to just give your machine the maths which describe where the lines are. So the software can just make your machine follow exactly what was designed as the edge – no guessing. These mathematical equations your machine can interpret to follow the vector line using left/right movement, rolling the mat and swiveling the blade to follow the trajectory.
Below is some examples – raster(bitmap/pixel/jpg/png) in left column and vector in the right.