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The SEC defines insider trading as: buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, non-public information about the security.
Laws limit trading of securities by those who possess non-public information that may impact the price of those securities. In short, this protects other investors from being ripped off. Without such a rule, a company insider could sell or short shares of his company after knowing, but before releasing, bad news. The law also applies if the insider shares the information with another person.
Related Links
Article on insider trading from the SEC
Investopedia article on insider trading
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