Tracking is a skill that allows the character to know if invisible or hidden characters, monsters, or other NPCs are around. Do note that tracked invisible NPC’s are not revealed using tracking.
Having higher Tracking skill allows characters to track characters with higher Hiding or Stealth skills, allows objects in a broader ranger to be detected, and allows objects to be detected more reliably.
It is currently most useful in PvP combat. Even with very little skill it is possible to reliably track most other visible characters, making it far more difficult for them to flee.