Comes from change modes. It is used to change the access control of a file or folder in order to allow owner, users or everyone to read/write/exec a file.
Permissions on unix-based systems are based on bitcounts. We have 3 bits, one for read, one for write and one for exec, making it 000 (or read write exec), if we set 001, by summing the bits we'll have 1 (because 001=1), if we want to set all permissions to a file we can simply set 111 (and by summing we have 7 because the binary sum of 111 is 7).
On another part we have to set permissions for the users. The order is owner users in group users not in group, so we can have 3 sets of bits 000 000 000 which means owner user guest. So we can set permissions by concatenating sums of bits like 654, this means: Owner can read-write (110=6), users can read and execute (101=5) and guests can only read (100=4).
# Sets the permission to owner can do anything, users can read and execute and guests only read the file "permissions.txt"
chmod 754 permissions.txt