The rate-determining step is the step for which the transition state has the highest energy. It is the slowest step within a chemical reaction. It can be thought of as the most difficult step to go through. It is also the step that must be used to calculate the activation energy.
Knowing which step is rate-determining is very important when studying a reaction mechanism. This is because if this step is changed the reaction can go much faster. This can be done for example by using a different reagent or changing the temperature or pressure. Changing the conditions for any other step of the mechanism will not change the overall speed of the reaction at all.
In the rate equation, which is an equation to calculate the speed of the reaction from the concentration of molecules, usually the only step that is important is the rate-determining one.