It’s more accurately called “Relative Humidity”. Air can only hold so much water vapor and it changes depending on the temperature; the hotter it is, the more water vapor can be in the air. The percentage is the amount of water vapor actually in the air relative to how much can be in the air.
100% means that there is as much water vapor in the air as it can hold. Add any more and the water vapor will condense into tiny liquid water droplettes and form fog/clouds.
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