ESCROW is a legal concept describing a financial instrument whereby a third party holds money (or an asset) on behalf of two other parties that are in the process of completing a transaction. ESCROW accounts might require escrow fees, charged by the agents holding the funds or assets until receiving appropriate instructions or until the predetermined contractual obligations are fulfilled. Money, securities, funds, and other assets can all be hold in an ESCROW. It is often suggested as a replacement for a certified (or cashier's) check.
It is used when two parties are completing a transaction, and one of the party want to be sure that the other is fulfilling its obligations. In other words, escrow is used as a precaution.