Each session adds the number of advancers minus decliners to a cumulative total. The resulting line is compared with the index itself: they normally rise together, and a disagreement is what traders watch for.
The classic warning is an index making a new high while the advance-decline line does not, indicating fewer stocks are participating. This was a widely noted feature before several historical market tops, which is why it remains closely followed.
Two honest caveats. Divergences appear often and resolve without consequence more often than not, and the measure is sensitive to the universe used, since exchange-wide lists include many interest-rate-sensitive vehicles that behave differently from operating companies.
Related: market-breadth, mcclellan-oscillator, new-highs-new-lows, divergence, distribution