Long ago it used to be that the major parties would hold a convention and decide who would be their nominee for President. The public wouldn't be involved until the actual election. Since the mid-20th century both major parties have held Primary Elections, the results of which are combined at the Nominating Convention to select the candidates. This way the people are more involved in the process. Iowa just happens to be the first. It's really no more important than any other Primary Election but it serves as an indicator of the way things are likely to go, and results in some candidates gaining strength and some dropping out.
https://en.wikipedia.org/wiki/United...ential_primary