The transponder is a device in your aircraft that receives signals from the ground radar system and responds automatically. When interrogated by radar, your transponder transmits information to the radar receiver, allowing the controller to see your aircraft on the radar screen with its call sign, altitude, and other data displayed above the radar target. Without a transponder, your aircraft appears as a simple "blip" on radar, with no identifying information.
Most aircraft in European airspace are equipped with transponders. It is mandatory in most controlled airspace, and strongly recommended in uncontrolled airspace as well. A transponder dramatically improves your conspicuity and safety.
The transponder operates using a four-digit code, called a "squawk code" or simply a "squawk." Air traffic services assign squawk codes to aircraft to identify them uniquely within a radar coverage area. When you are told to squawk a specific code, you enter that four-digit number into your transponder and leave it set for the duration of the flight (until instructed otherwise).