Customer Acquisition Cost is exactly what it sounds like: how much, on average, it costs a business to turn a stranger into a paying customer. It's calculated over a period — usually a month or a quarter — by dividing everything spent on sales and marketing in that period by the number of new customers that period produced.
CAC on its own doesn't tell you whether a business is healthy; it only becomes meaningful next to Customer Lifetime Value (LTV). A $500 CAC is a disaster for a product that generates $100 of lifetime profit per customer, and a bargain for one that generates $5,000. That comparison is exactly what the LTV:CAC ratio measures.
CAC tends to rise as a channel matures and the cheapest, most obvious customers have already been captured — a rising CAC over time, even with flat ad spend, is often a sign that a growth channel is saturating.