From HuffPo: The debt ceiling is the maximum Congress lets the government borrow. Back in ancient times (World War I), Congress started setting a big old debt limit so that it wouldn't have to constantly approve new borrowing, its job under the Constitution. This gives Congress the power to vote on whether to let the government borrow more money to pay off its old debts and other stuff for which it's on the hook, including stuff it may regret now, like that unfortunate leather sofa it bought at Raymour & Flanigan, or Iraq.
Usually this is no big deal. Congress is constantly having to boost the debt ceiling. But the historically terrible 112th Congress darn near let the ceiling be breached last year, trying to wring spending cuts out of Obama. That meant the government was nearly unable to pay its debts, which would have been an economy-destroying default by the world's biggest borrower and one of its soundest credits. The whole fiasco led to the U.S. government getting its credit-rating downgraded by Standard & Poor's, and it set the stage for all that fiscal-cliff nonsense we just went through…..