An API gateway signifies a crucial component in microservices architecture, acting as a single entry point for client requests. It manages traffic and routes requests to appropriate services, enabling developers to decouple various functionalities and enhance scalability. API gateways also provide essential features like authentication, rate limiting, and caching, ensuring secure and efficient communication between services. By centralizing common functionalities, they simplify the client interface and facilitate easier management of multiple microservices, ultimately improving the overall architecture and performance of distributed systems.