The geodatabase is a means of storing GIS data in a rational, compact and versatile way. 

Geodatabases are created within ArcCatalog, one of the primary components of ESRI ArcView/ArcGIS. Although ArcCatalog looks like Windows Explorer, it is in fact a utility that allows many specialised functions to be performed, including:

• Importing and exporting data between databases and Windows directories

• Manipulating spatial references and coordinate systems

• Creating new datasets to hold spatial data

• Creating TINs (triangulated irregular networks) on which data and images can be draped to produce 3-D visualisations (Geo-Logic currently does not have this capability)

ArcCatalog is the powerhouse behind ArcMap. 

Many GIS users store spatially referenced data in shapefiles – shapefiles are like sheets of paper with an assigned geometry (point, line or polygon) into which map objects are written and saved. In a geodatabase, shapefiles are replaced by feature classes which are to shapefiles as spreadsheets are to a blank sheet of paper. 

Feature classes are hosted in feature datasets which, to continue the analogy, are to feature classes as Excel workbooks are to single spread sheets. This system of arranging and storing data allows for more powerful and subtle functions to be applied to the data. When data are added to ArcMap, this results in more sophisticated and flexible map outputs.

An added benefit of the geodatabase is that data are stored in a single section of the directory. This means that links between any ArcMap document and it’s source data are not severed if the directory structure is modified, such as by adding sub-folders.

For more information see Siteplans.
The ArcCatalog window. In the TOC at left is seen (i) the directory structure (mirrored from Windows Explorer), (ii) several geodatabases (represented by cylinders), and within these, (iii) feature datasets. In the right pane are feature classes stored in the feature dataset "Source data".
Another view of the Geodatabase in ArcCatalog. This time in the right pane is seen "metadata" - that is, information about the GIS data itself. The dialog box in foreground is used to export CAD data to the geodatabase.
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