It was instituted to read the Megillah in its proper time, namely on Purim or, in walled cities from the time of Joshua, on Shushan Purim. Women are included in this obligation even though it is a positive commandment and dependant on a particular time. So important is reading the Megillah that it supersedes any conflicting Torah obligation with the exception of meis mitzvah, attending to the burial of a deceased person who needs it.
The Megillah is the Biblical Book of Esther. It tells the story of Purim: that Esther became queen of Persia, Haman sought to destroy the Jews, and God turned everything around so that the Jews went from the verge of destruction to greatness. At the end of the Megillah, it is instituted to feast on Purim, to give gifts to the poor and to send portions of food to friends. The Megillah, which was originally a letter sent by Mordechai and Esther, was accepted into the canon.
Purim is the subject of the Talmudic tractate of Megillah. It is codified in the Shulchan Aruch in Orach Chaim 686.