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What is the "Unknown Sources" setting?

Its location in Settings→Security already makes clear it is a related thing. If disabled (which is the default on most devices), the only source you can install apps from is the . Only after enabling it, you permit apps from other sources to be installed -- a process known as .

What are the risks involved activating this setting?

Permitting apps from "other sources" to be installed on your device might introduce the risk of drive-by downloads -- at the most if you tend to simply click "OK" whenever a popup window asks you something (as you still must approve the side-loaded app's permissions). Actively installing apps from unknown sources might introduce the risk of as well, if those sources are "untrustable" or even just "unknown".

Why should I enable this setting then?

There are still good reasons to use this feature. After all, on each installation you have to acknowledge the permissions of the app-to-be-installed, even if those are trivial or non-existing. Good reasons are e.g. if you have trouble with some app, and the developer sends you a fixed version to test (at least, if you can trust him). It is also required to use 3rd party markets such as e.g. AndroidPIT or Amazon.

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