Features on a map reference the actual locations of the objects they represent in the real world. The positions of objects on the earth's spherical surface are measured in geographic coordinates. While latitude and longitude can locate exact positions on the surface of the earth, they are not uniform units of measure; only along the equator does the distance represented by one degree of longitude approximate the distance represented by one degree of latitude. To overcome measurement difficulties, data is often transformed from three-dimensional geographic coordinates to two-dimensional projected coordinates.
When creating a new analysis, you will be given the option to select a projection/coordinate system. Once selected this will be the projection for the entire analysis
Because the earth is round and maps are flat, getting information from a curved surface to a flat one involves a mathematical formula called a map projection, or simply a projection.
This process of flattening the earth will cause distortions in one or more of the following spatial properties:
Distance
Area
Shape
Direction
No projection can preserve all these properties; as a result, all flat maps are distorted to some degree. Fortunately, you can choose from many different map projections. Each is distinguished by its suitability for representing a particular portion and amount of the earth's surface and by its ability to preserve distance, area, shape, or direction. Some map projections minimize distortion in one property at the expense of another, while others strive to balance the overall distortion. As a map maker, you can decide which properties are most important and choose a projection that suits your needs.
If your spatial data references locations with latitude and longitude - for example, decimal degrees-you can still display it on your map. ArcMap draws the data by simply treating the latitude/longitude coordinates as planar x,y coordinates. If your map doesn't require a high level of locational accuracy - you won't be performing queries based on location and distance or you just want to make a quick map, you might decide not to transform your data to a projected coordinate system. If, however, you need to make precise measurements on your map, you should choose a projected coordinate system.
You want to make accurate measurements from your map and be sure that spatial analysis options you use in ArcMap calculate distance correctly. Latitude/Longitude is a good system for storing spatial data but not very good for viewing, querying, or analyzing maps. Degrees of latitude and longitude are not consistent units of measure for area, shape, distance, and direction. You are making a map in which you want to preserve one of more of these properties: area, shape, distance, and direction.
For more information, see ArcMap help.