At its most basic, it means providing your product or service at different price points. Nearly every major business you encounter uses it in some way. When you're choosing between shipping something 5-7 day, 3-5 day, 2-day or overnight, that's tiered pricing in action. It's around us all the time, whether we realize it or not.
plain and simple, you will make more money. People will pay up to the limit they can afford. If a customer is willing to pay $100 and your product costs $10, why would you leave that $90 on the table?