What does custodial mean?
Custodial means someone else is the custodian: a company holds your keys, and through them your funds or your identity, on your behalf. You log in and see a balance, but the keys that move it sit on their servers. Non-custodial is the other arrangement, where you hold the keys yourself. The word shows up most around Bitcoin and Lightning, but the idea is general. Anywhere there is a key, there is a question of who holds it.
That question is the whole point, because the holder of the keys is the one who really controls the thing. A custodial balance is, in the end, the company’s account with your name on it. They can freeze it, close it, ask you for an identity document, or simply lose it if they fail. Holding your own keys removes that party from the picture.
Which one should you pick?
There is no single right answer, only a trade you make on purpose. Custodial is convenient: the provider handles the keys, the backups, and the hard parts, and you can start in minutes. The cost is that you do not truly own it, and you inherit whatever the provider does or has done to it.
Non-custodial flips both sides. Nobody can freeze or close what only you hold, and no one can demand papers to let you use your own money. The cost is that the responsibility is now entirely yours: lose the keys, skip the backup, and there is no support line to call. The honest rule of thumb is to match the choice to the stakes. Custodial for small, replaceable amounts where convenience wins; non-custodial for anything you actually intend to own.