A precedent is something that sets a standard for future events. It's hard to say what the legal community would do without the word precedent, since so many legal judgments and decisions are based on what came before.
Lawyers and judges often look for a precedent that can be used as a guide for a similar case. This word is used elsewhere too. Your mom might not let you stay up late because it would set a bad precedent for future bedtimes. A teacher who lets kids chew gum is setting a precedent that gum-chewing will be OK in the future. People often refer to a precedent later on as a reference point for how things should be.