A differential uses gears to split the power from your engine to your drive wheels so that they can each spin at different speeds. Allowing each drive wheel to spin at its own speed reduces strain on your axles, and makes turning easier on you. Like a transmission, which also uses gears, the differential uses a type of oil to ensure the gears stay lubricated and cool.
During a differential service, we replace the old differential fluid by refilling the differential with new fluid.