it's meant to help with duplicate content issues so www.yoursite.com and yoursite.com.index.php are recognized as the same page. This holds true for dynamic pages also, like a list of products that take more than 1 page to list. Page 2 is the same page just extended. So basically it tells Google about duplicate content/pages and who is master. It is not crucial but in today's world every little bit helps in SEO. This is something I do need to attend to soon. Thanks for the reminder. Ken
I think you should also refer this post from Google official blog to know more about canonical issue; http://googlewebmastercentral.blogspot.com/2009/02/specify-your-canonical.html