What is token-based authentication?
I think it's well explained here -- quoting just the key sentences of the long article:
The general concept behind a token-based authentication system is simple. Allow users to enter their username and password in order to obtain a token which allows them to fetch a specific resource - without using their username and password. Once their token has been obtained, the user can offer the token - which offers access to a specific resource for a time period - to the remote site.
In other words: add one level of indirection for authentication -- instead of having to authenticate with username and password for each protected resource, the user authenticates that way once (within a session of limited duration), obtains a time-limited token in return, and uses that token for further authentication during the session.
Advantages are many -- e.g., the user could pass the token, once they've obtained it, on to some other automated system which they're willing to trust for a limited time and a limited set of resources, but would not be willing to trust with their username and password (i.e., with every resource they're allowed to access, forevermore or at least until they change their password).
If anything is still unclear, please edit your question to clarify WHAT isn't 100% clear to you, and I'm sure we can help you further.
From Auth0.com
Token-Based Authentication, relies on a signed token that is sent to the server on each request.
What are the benefits of using a token-based approach?
Cross-domain / CORS: cookies + CORS don't play well across different domains. A token-based approach allows you to make AJAX calls to any server, on any domain because you use an HTTP header to transmit the user information.
Stateless (a.k.a. Server side scalability): there is no need to keep a session store, the token is a self-contained entity that conveys all the user information. The rest of the state lives in cookies or local storage on the client side.
CDN: you can serve all the assets of your app from a CDN (e.g. javascript, HTML, images, etc.), and your server side is just the API.
Decoupling: you are not tied to any particular authentication scheme. The token might be generated anywhere, hence your API can be called from anywhere with a single way of authenticating those calls.
Mobile ready: when you start working on a native platform (iOS, Android, Windows 8, etc.) cookies are not ideal when consuming a token-based approach simplifies this a lot.
CSRF: since you are not relying on cookies, you don't need to protect against cross site requests (e.g. it would not be possible to sib your site, generate a POST request and re-use the existing authentication cookie because there will be none).
Performance: we are not presenting any hard perf benchmarks here, but a network roundtrip (e.g. finding a session on database) is likely to take more time than calculating an HMACSHA256 to validate a token and parsing its contents.