What's an Index? An index provides "a summary of the market [based on] the top stocks within a market."
Indices reflect numerous different markets; major ones include:
There are also indices for the bond market, like the Lehman Aggregate Bond Index.
Does an index tell you everything about a given market? No. The Dow is not the market, it's just a market indicator. People use indices to gauge the health of certain sectors, and as benchmarks against which they measure the performance of securities in that sector.
How do index funds work? As you might guess, index funds are mutual funds comprised of stocks that mirror certain indices like those above.
Pick your angle. Which index do you watch?