A common ancestor is the parent species from which all subsequent species can be traced back to. The figure below shows the tree of life and has highlighted where the common ancestor for all organisms originated. The last common ancestor does not only apply to the origin of all living things, but can also apply to the most recent common ancestor of just one or two species. Common ancestors are used to map the path of evolution, categorize species and perform comparative genomics in order to glean information regarding methods of a species evolution.
Image: Berkely, learning evolution.
Wikipedia. Most Recent Common Ancestor. Last updated 18 Oct 2012.