CAGR — compound annual growth rate — answers a simple question: if my investment had grown at one steady rate every year, what would that rate have been? It compresses several years of performance into a single, comparable yearly figure.
The key word is compound: gains earned in year one are part of the base that grows in year two, and so on. That is why you cannot simply divide the total return by the number of years — a fund that grew 50% over five years did not grow 10% per year, but roughly 8.4%, because of compounding.
On fund pages, a 3- or 5-year CAGR gives a calmer, more honest picture than a single year's return, because it absorbs exceptional years in either direction. But it is still an average: a fund with a 7% CAGR may well have had a year in which it lost 15%.
Always compare CAGR between funds of the same category and over the same period — comparing one fund's 3-year CAGR with another's 5-year CAGR is not a fair comparison.