Principal is the amount you actually borrowed — the price of the house minus your down payment. Everything else in your monthly bill (interest, taxes, insurance) is the cost of borrowing or owning; principal is the debt itself.
Why it matters: every dollar of principal you pay off is a dollar of equity you own. Early in a mortgage, most of your payment goes to interest, because interest is charged on the whole outstanding balance. As the balance shrinks, the interest share shrinks with it, and more of the same payment lands on principal. That gradual flip is called amortization.
A useful mechanic: extra payments marked "apply to principal" skip interest entirely and shrink the balance directly, which reduces every future interest charge and can shave years off the loan. Play with the numbers in the mortgage calculator to see how your own payment splits — and how quickly a modest extra payment moves up the payoff date.