In simple terms (FSI) determines the concept of how much one can built on a plot of land. Basically it's ratio between total built-up area available and hence determines the total permissible construction allowed by the government for a particular area or locality.
For example, if for a particular plot area of 10,000 square meters, an FSI of 3 is allotted, then a construction of 30,000 square meters would be allowed for the building.
FSI = Total permission built up area/ Total plot area
If, plot area = 100 ft * 100 ft = 10,000 sq ft
If, FSI is 3
Then, permissible built up area = 30,000 sq ft
Floor Space Index (FSI) can also be represented as Floor Area Ratio (FAR). FSI is regulated by the municipal bodies and town planners of the respective state govt. Higher FSI for a land means greater building volume. Hence, among all the regulations in development planning, FSI is the most crucial. A land loaded with more FSI is naturally more valuable than a land with lesser FSI in the same location.
But again you should be aware of the zoning regulations, reservation details and other development control regulations on the land apart from the permissible FSI available on it. The permissible FSI is different for different area and for different types of real estate projects (Residential VS Commercial VS Residential)