The equation $$u = mgh$$ represents gravitational potential energy, where 'u' is the potential energy, 'm' is the mass of an object, 'g' is the acceleration due to gravity, and 'h' is the height of the object above a reference point. This equation illustrates how energy is stored in an object based on its position in a gravitational field, showing that higher objects have more potential energy. It connects with the concepts of energy diagrams and equilibrium by depicting how potential energy changes with position and how it influences the stability of systems.