Bert Wagner shows us why cardinality is important to understand when indexing data:
When building indexes for your queries, the order of your index key columns matters. SQL Server can make the most effective use of an index if the data in that index is stored in the same order as what your query requires for a join, where predicate, grouping, or order by clause.
But if your query requires multiple key columns because of multiple predicates (eg. WHERE Color = ‘Red’ AND Size= ‘Medium’), what order should you define the columns in your index key column definition?
One of my favorite books for query tuning is a bit long in the tooth at this point but remains quite relevant, and a key point there is to look for ways to drop the largest percent of rows as soon as possible. This applies for good indexes as well: they’ll let you ignore as large a percentage of your irrelevant data as you can, as soon as possible.