Displacement refers to the change in position of an object from its initial point to its final point, taking into account the direction of movement. It is a vector quantity, having both magnitude and direction. Displacement is represented as the shortest path between the starting and ending points in a straight line. This differs from distance, which is a scalar quantity that measures the total path length traveled regardless of direction. Displacement is crucial in understanding motion dynamics, as it helps in calculating an object's velocity and acceleration when analyzing its movement over time.