This is important for SEO because

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Not to mention, SEOs could game the system by simply placing target keywords on the relevant page(s) and then ranking for that page.

Entities help Google understand the connections. Instead of relying solely on keywords, Google looks at the bigger picture. It understands that "New York" is a [place] and "pizza" is a [type] of [food]. It can also recognize specific pizzerias as entities.

Better search results : Google can provide more accurate answers based on meaning, not instagram database just by matching words.
Voice Search & AI : People now search with voice assistants. Instead of typing " Cape Town weather ," they ask, " What's the weather like in Cape Town today? " Entities help search engines understand these questions in natural language.
"Knowledge Boxes" & "Featured Snippets" : When you search for a famous person or brand, Google displays a detailed information box. This happens because Google treats them as "entities."