Lightroom has more than one way of keeping tracking of the edits you make to your images, and the various methods have pros and cons that you should be aware of as your catalog grows. This helpful video discusses the usefulness of XMP files and why you should consider using them.
Coming to you from Anthony Morganti, this helpful video discusses the usefulness of XMP files. You might have heard these called "sidecar files." These are essentially small text files that accompany raw images and encode any edits or metadata changes. You do not need sidecar files with non-raw images because any changes are written directly onto the image file itself. An XMP file is useful for two reasons. First, if you share your raw files, they allow whomever you share them with to also see any edits on the file; otherwise, they will just see the raw files as it looked out of the camera (unless you choose to convert it to a DNG). Second, XMP files serves as a useful backup of all your edits in case your Lightroom catalog file becomes corrupted and unrecoverable for some reason. It is definitely worth considering turning them on for a little extra security. Check out the video above for the full rundown from Morganti.