#include is used to include outside libraries in your sketch. This gives the programmer access to a large group of standard C libraries (groups of pre-made functions), and also libraries written especially for Arduino.
The main reference page for AVR C libraries (AVR is a reference to the Atmel chips on which the Arduino is based) is here.
Note that #include, similar to #define, has no semicolon terminator, and the compiler will yield cryptic error messages if you add one.
Example Code
This example includes a library that is used to put data into the program space flash instead of ram. This saves the ram space for dynamic memory needs and makes large lookup tables more practical.
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