Principal refers to the original amount of money involved in a loan or investment, before any interest is added on top. If you take a home loan of ₹50 lakh, that ₹50 lakh is the principal — everything you pay beyond that amount over the loan's tenure is interest, which is essentially the cost of borrowing that money.
The same term applies on the investment side too — if you invest ₹1 lakh in a fixed deposit, that ₹1 lakh is your principal, and whatever grows on top of it is your return or interest earned. Understanding how much of your loan repayment or EMI is going toward reducing the principal versus paying interest is important, since paying down principal faster (through prepayments) directly reduces the total interest you'll pay over the life of the loan.