What is a UTXO?
UTXO stands for Unspent Transaction Output. When you receive Bitcoin, that arrival is recorded as an output, a discrete chunk with an amount. While it sits unspent, it is a UTXO: a coin your wallet controls. Your balance is not a single stored number. It is the sum of all the UTXOs your wallet can spend, the way a pocket of cash is the sum of the individual notes in it.
Why does the UTXO model matter?
Spending is where it gets concrete. A UTXO is consumed whole. To pay someone, the wallet selects enough UTXOs to cover the amount, sends what is owed, and returns the remainder to itself as a new UTXO, the change. So a single payment destroys some UTXOs and creates others.
This has two practical consequences. Fees: a transaction’s size, and so its fee, grows with how many UTXOs it consumes, so a wallet holding many tiny coins is expensive to spend. Privacy: every output is visible on the public chain, and grouping unrelated UTXOs into one transaction links them, which can reveal more than you intended. Good wallet software manages this for you, but knowing that your balance is really a pile of discrete coins explains a lot of behaviour that otherwise looks strange.