Choice of law (also called conflict of laws) arises when a legal dispute occurs across legal boundaries. For example, suppose I live in New York, and sign a contract to buy computers from you, a company headquartered in California. If we have a dispute about the contract, we need to decide which state's law and which courts (and juries) will be used to resolve the dispute. The law that applies to our dispute is called the applicable or governing law.
In many cases, it doesn’t matter which law or court we use. But in some cases, it matters a lot. For example, the California law may be friendlier to customers, or a jury in New York may be friendlier to me than to a California companies.
Since we know that the choice of law and court may matter, we may specify in the contract which laws and courts will be used to resolve any disputes. (These may not be the same. The contract could say that our case will be heard in the SDNY using CA law.) The clause that says which laws apply, and which courts will apply them, is called a governing or applicable law clause.
Here’s an example many of us have used, probably without realizing it:
APPLICABLE LAW By using any Amazon Service, you agree that the Federal Arbitration Act, applicable federal law, and the laws of the state of Washington, without regard to principles of conflict of laws, will govern these Conditions of Use and any dispute of any sort that might arise between you and Amazon.