It is a distributed configuration management clustering product like zookeeper. It simplifies the creation and sharing of mostly configuration data in clustered or distributed systems.
If it's all one the same box, that's trivial.
But imagine you have several app serves, and several other systems that all needs to talk to the database. Then one day you need to change details of the database server. Now you can either use a tool to update all the configurations (or do it by hand), or you can have all of these apps pull the database config from a distributed directory of some sort.
Etcd is such a directory. Similar to LDAP, but simpler (LDAP requires you to write schemas, and decide which attributes to index on and in set up replication hierarchies). Some people also use DNS for this (you can put arbitrary data in a private DNS server).
There is more to configuration management that templating files, but in inspection and having other services arriving at other states.