PATH is an environment variable that is a list of locations where executable programs lie (see also the wikipedia page.
Whenever you are in your command line and try to execute some program, for example regedit, then the cmd does not magically know that you mean C:\Windows\regedit.exe. Instead, it searches all locations in your PATH for an executable named regedit and finds it in C:\Windows which is one of the standard parts of PATH in Windows.
That is also, why messing with the PATH can be dangerous if you don’t know what you are doing, because it might lead to things not working anymore if, for example you delete parts of the path or add custom directories to it.
That being said, you should now have an idea what happens when you “Add anaconda to path”. It simply means, that Anaconda adds the directory where its executables lie to the PATH, hence making it findable when, for example you type conda in your cmd.
That being said, adding Anaconda to PATH is something that is convenient, because the commands can always be found automatically and they will also be found by other programs scanning your PATH for a python executable.
At the same time it is not necessary. When you use e.g. pycharm, then you can specify the path to the interpreter inside of pycharm. it does not necessarily need to be present in your PATH.
Note:
I personally have it on my PATH because I am too lazy to open an Anaconda prompt each time I need it in a cmd and I do not see the harm in it if you understand the consequences and its my only python installation anyway.
Also Helpful:
On windows, you can use the where command to find out from where commands are loaded. For example:
where regedit
gives
C:\Windows\regedit.exe
This can be especially helpful when trying to debug PATH issues