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A formula is an algorithm that derives its value from other fields, expressions, or values. Formulas can help you automatically calculate the value of a field based on other fields (from Salesforce doc). Formulas can be used in many areas of Salesforce other than just Formula Fields, such as Validation Rules and criteria for Workflow Rules and Approval Processes.
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Why can't I create a formula field on a data model object?
Why can't I create a formula field on a data model object? …
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Formula field change doesn't cause trigger fire
Assume we have ObjectA__c with Field1__c and ObjectB__c with formula field Field2__c which is formula to ObjectA__r.Field1__c. …