Definition:
Environment of a system is termed as a system context. A System is connected to it’s environment, it never stands on its own. In order to decide who and what exerts influence on the system being developed, the system context needs to be defined. Knowing the system boundaries, you know the scope of the system.
If you define boundaries of a system you get the clarity on system you are developing, how it impacts the development process and what can be disregarded during development. On analysing the system context it determines stakeholders, processes, documents and events relevant for the system. Demarcating the system boundary defines what functionalities of a system it is supposed to offer and what interfaces to external system exist. Requirement is identified systematically, identifying the relevant context by defining systems border. This builds foundation for evaluation of the requirements for the new system. If the context is not defined properly during requirements engineering, the system relies on incomplete and inaccurate assumptions which might lead to a faulty behaviour.
Further Reading:
https://www.microtool.de/en/what-is-the-system-context/
https://www.flamelab.de/article/defining-the-system-context/