Digital scarcity is the idea that a digitally native asset can be coded to have an immutably (permanently) limited supply. Though other digitally scarce assets exist today, Bitcoin pioneered the concept of digital scarcity through being limited to 21 million bitcoins in its code. This in turn cemented digital scarcity as the crux of Bitcoin's value.
Why does digital scarcity matter?
Digital scarcity matters because it flips one of the central ideas of how money as well as assets should work on its head. Instead of allowing companies to issue more stock or national banks to issue more currency when they see fit, digital scarcity mandates that issuance needs to be preset and immutable, i.e., unalterable by humans in any case.
Without this feature, Bitcoin would be just another currency/asset and wouldn't have inspired the creation of an industry that's already looking to replace the global financial system.