A 7-segment display decoder is a type of digital circuit that converts binary-coded decimal (BCD) inputs into the corresponding signals needed to illuminate the segments of a 7-segment display. This component is crucial for visually representing numerical information in electronic devices, as it allows for easy reading of numeric data by activating the appropriate segments based on the input code. By interpreting the input signals and controlling the display segments, the decoder plays a key role in facilitating user interaction with digital systems.