An audience signal is the set of audiences you give a Performance Max asset group as a starting hint for who is likely to convert. It guides Google's machine learning but does not restrict targeting, which is the part people misread.
A signal, not a target
Unlike a traditional audience, an audience signal does not limit who sees your ads. It tells Performance Max where to start looking, and Google then explores beyond it. Feeding a strong signal, your customer list, converters, high-intent in-market audiences, speeds up learning.
Why the input quality matters
Because PMax leans on the signal early, a weak or generic one sends it exploring in the wrong places and wastes budget while it learns. Seed it with your best first-party data, the same principle as seeding a lookalike from real converters, not from all visitors.