Why it matters
When an address that does not exist answers 200, search engines index error pages as real ones, and a broken link on another site looks like it works. Sending every missing page to the homepage is treated the same way: Google calls it a soft 404. We ask the site for a page that cannot exist and look at the answer.
How to fix it
Make the server or CMS return status 404 (or 410 for pages removed on purpose) for unknown addresses, with a helpful error page in the body. Keep redirects for pages that really moved.