The Magic Circle (AKA The Sacred Circle) protects you while you carry out your spell or ritual work. It also separates you from the mundane world, and holds the magical energy in the space until it's ready to be released. Many people find that the weather is always calm inside a circle, and they are much less likely to be bothered by outside influences.
It's a bit of a misnomer; the magic circle is less of a circle, and more like a sphere. As you cast it, you should envisage a protective shield enveloping the area, forming a dome above you and the other half of the sphere below you, in the ground.
Time works differently within the circle; sometimes you can spend what feels like hours in the circle when you've only been half an hour. This is why you shouldn't bring mobile devices into the circle, as time gets really screwed up.
If you walk out of the boundaries of the circle, it breaks and you will have to recast it. This goes for anyone else entering or exiting the circle without first making an entrance/exit with an athame/wand. This is why you should mark the boundaries of the circle with candles/stones/salt/chalk/etc so you don't accidentally step out of it.
If you have to exit the circle for some reason during the spell, take a moment to imagine an archway growing in the energy wall of the circle, through which you can step for a moment. When you return, imagine the archway shrinking away until all that's left is the smooth unmarred energy wall again
Cats are the only animal that can walk in and out of a circle without breaking it.
Circles don't have to be cast just for doing spells. It's a good practice to cast one before meditating. You can also cast one around your desk at work to stop people bothering you temporarily while you need to concentrate on getting something done.
Although I've listed The Magic Circle as a "Fundamental" part, most traditional witches deem them unnecessary to be cast outside since the whole Earth is sacred. However, I think they are important to keep in mind, especially for beginners.
EDIT 31/7/19:
It is very important to take down the magic circle after you've finished with it. This is known as "opening" the circle, although sometimes referred to as "closing" the circle. Not doing so leaves the magical equivalent of an upturned rake in the astral plane, which means that the energy raised during the spell isn't released, and it can draw negative influences to the circle. Instructions on how to open a circle can be found below.
How to use a Magic Circle:
(The dominant hand is the one you write with)
1. Cast the circle. Walk clockwise from North with wand/athame in dominant hand pointing to ground. Repeat "I cast the sacred circle, I am between the worlds."
2. Call the quarters. Start at north. Point upwards with wand/athame in dominant hand and say: "I call thee spirit of the [direction]. Please join me and lend me the power of [element]. Blessed be." Repeat for each element, moving clockwise.
3. Perform the spell/ritual.
4. Release the quarters. Return to the last quarter called, point upwards with wand/athame in non-dominant hand and say: "Thank you, spirit of [direction], for joining me and lending me the power of [element]. Stay if you will, go if you must. Farewell and blessed be." Repeat for each element, moving anti-clockwise.
5. Open the circle (sometimes known as "closing" a circle). Draw energy back into the wand/athame, held in the non-dominant hand. Walk anticlockwise around the circle saying "The circle is open, but unbroken. Merry meet, merry part, and merry meet again."
North: Earth
East: Air
South: Fire
West: Water
If you prefer to work with angels, you can call forth Uriel (earth), Raphael (air), Michael (fire), and Gabriel (water).
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