The squelch is an electronic circuit in your radio receiver that automatically mutes the speaker when no signal is present. In other words, it suppresses background static and noise (also called "hash") when the radio is not receiving a transmission. This is critical for usability, because without squelch, the constant hiss of atmospheric noise would make it impossible to communicate.
When a transmission arrives, the squelch circuit detects the presence of a signal and opens, allowing you to hear the incoming audio. Most modern aviation radio units allow the squelch to be adjusted. A higher squelch setting means the receiver requires a stronger incoming signal before it unmutes. A lower squelch setting is more sensitive and may unmute for weaker signals, but may also allow some background noise through.
As a general principle, you should set the squelch to the lowest level that eliminates most background noise while still allowing weak signals to come through. The common guideline is to "barely audible noise"—adjust the squelch so that you hear just a faint whisper of noise when no transmission is present. If you set the squelch too high, you may miss legitimate transmissions from distant stations or weak signals. If you set it too low, you will be bothered by constant background noise and may miss the onset of an incoming transmission.
In flight, you do not normally adjust the squelch once you have set it properly. It remains set for the flight. However, if you move to a new frequency with very different signal strengths, you may need to readjust briefly.