The equity or pot equity refers to the share of the pot belonging to a player based on his long term chances to win.
If the pot is $10 and a player has a 50% chance to win, then his equity is $5 because according to the law of large numbers he will win $5 on average.
One central theme related to pot equity is expected value (EV), or the amount that will be won over the average of all possible outcomes of a given situation.
Whereas the odds and pot odds are only concerned with whether a call is profitable when a player has a draw, equity calculations can tell whether a move is profitable or not so that a player can tell which move maximizes the equity or expected value.
The basic idea is to get away from categories like draws and made hands and to evaluate a hand on the basis of its probability of winning. A hand with a high chance of winning, whether finished or not, results in a high share of the final pot, a high equity and expected value.
Example (Texas Hold'em):
Player A has the pair of aces and the current best hand. If there were a showdown now, then he would win. But B is actually the favorite here. The probability that he will obtain the best hand by the river is around 66%, whereas A will only win 34% of the time. It is therefore in B's best interest to make the pot as large as possible, since on the flop 66% of the final pot belongs to him. He has the superior hand and so should raise every bet made by A and even go all-in to maximize his profit.
A calculation of the best move in this situation takes into account all the moves B could make and all the outcomes that could then result.
EV (fold) = 0$
EV (call) =...
EV (raise) =...
The action with the highest EV is the most profitable.