If only 35 percent of an index's members are above their 200 day average while the index sits near a high, the advance is narrow. If 90 percent are above it, participation is broad but the market may also be short-term stretched.
It is one of the most intuitive breadth measures because the number means something directly, with no cumulative series or arbitrary scaling. Extremes below 20 percent have often coincided with major lows, though not reliably enough to be traded mechanically.
The choice of average matters a lot: the 50 day version is a short-term sentiment gauge that swings quickly, while the 200 day version changes slowly and describes the market's underlying condition. They frequently disagree.
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