Clusters are a group of hosts linked to be managed as a group. A cluster can act as a single, larger, more powerful host by sharing the resources of all hosts.
Some benefits of host clusters include:
If a host in the cluster goes down, the VMs that resided on that host can be started up on one of the other hosts in the cluster.
Sharing of Resources
VMs can be load balanced across hosts to utilize efficiently the resources (CPU, Memory, etc.) of the cluster with VMware Distributed Resource Scheduler (DRS).
Clustering hosts allows the use of vMotion, which is the live migration of VMs across hosts in the cluster without having to power them down.