The type of memory that is volatile and loses its data when power is off is called RAM (Random Access Memory). This memory provides fast access for the processor to read and write data during operation. RAM is crucial for temporarily storing data being processed, as it allows for quick access and retrieval, enhancing the overall performance of devices. When a computer is turned off, all data in RAM is erased, contrasting with non-volatile memory types, like hard drives or SSDs, which retain data.