Context is what something is surrounded by, its setting. For example, if something is not in it's usual place it can be said to be out of context. Context is often used when deciphering new words. We can sometimes figure out what a new word means by the words we know around it.
Take a look at the animation below, in time the peripheral letters change to suggest different words and therefore a different interpretations of the symbol in the middle:
The letters on each side were easy to read, but the center letter was harder, but your brain can see that 'H' fits with 'T' and the 'E' to make the word 'the' and it can use this to fire the neurons that tell you that the middle letter is 'H'. In the same way, when we later see the letter 'C' and 'T' surrounding the middle letter, your brain sees that the 'A' fits with them to make the word 'cat'.