What it is
COGS captures the direct costs of producing whatever the company sold: raw materials, the labour that physically made the product, the packaging, the freight in.
It does NOT include rent for the head office, marketing, or the CFO's salary — those land in operating expenses.
Why people watch it
COGS tells you how much it actually costs the company to deliver one unit of its product. The smaller the gap between revenue and COGS, the tougher the business is on margins.
Service vs. product companies
For pure software companies, COGS often shows up as "Cost of Revenue" and includes hosting fees and customer-support payroll instead of raw materials.