According to Wikipedia :
Web analytics is the measurement, collection, analysis and reporting of Internet data for purposes of understanding and optimizing web usage
Web analytics could also be considered to be :
The study of the impact of a website on its users
Don’t be fooled though that web analytics is just a tool for measuring web traffic. It can (and should) be used for business research and market research, and to assess and improve the effectiveness of your web site.
Marketing Analysis
Web analytics are able to help companies measure the results of their various marketing campaigns (including traditional print advertising). It also helps you to estimate how traffic to a website changes after the launch of a new advertising campaign.
Site Usage Analysis
Web analytics provides information about how visitors find and interact with your website, including statistics such as the number of visitors to a website and the number of page views.
Web analytics software is often used to measure and monitor such concrete details as how many website visitors were unique, how they came to the site (i.e., if they followed a link to get to the site or came there directly), what keywords they searched to find the site (and also on the site’s own search feature if it has one), how long they stayed on a given page or on the entire site and what links they clicked on and when they left the site.
Understanding how users interact with your site is critical if you are looking at improving conversion rates, or considering a site redesign.
Market Research
It can also be used to judge traffic and popularity trends which is important for market research.
