This rule is a good rule of thumb and starting place for those of us who are still using full manual mode. The basic rule is that you set your shutter speed to whatever your ISO sensitivity is set at (or if there is no exact shutter speed for your ISO pick the next speed up, ISO 400=1/500 second), then base your aperture on conditions. Obviously this is for outdoors use. The “Sunny 16” name means just that, you would set your aperture to f/16 on a sunny day. On a day with snow on the ground, which tends to overexpose, you would set it to f/22. Then as conditions get cloudier and worse, you adjust downward from there. This chart is a good way to remember things.
You might not ever need this rule, but it always helps to understand how lighting sources affect what settings you use in a shot.