Clearance volume is a volume between the cylinder head and the piston top when the piston is at top dead center
Significance
Clearance volume used to find the compression ratio, volumetric efficiency which affects the efficiency of an engine.
If clearance will be less it will bang the piston, If clearance is more it will pull off the air during suction stroke which creates problems in compression.
Perfect clearance volume leads to increased efficiency of an engine and fuel efficiency.