Asset allocation is the decision about how much of your capital sits in each broad bucket. Because asset classes have different return distributions and imperfect correlation, the mix determines most of a portfolio's volatility and a large share of its long-run return.
A simple example: $100,000 split 70% equities and 30% bonds. If equities return 9% and bonds 3% over a year, the portfolio returns 0.70 x 9% + 0.30 x 3% = 7.2%. If equities instead fall 20% and bonds gain 4%, the portfolio loses 0.70 x 20% - 0.30 x 4% = 12.8% rather than the full 20%.
The allocation you can hold through a bad year matters more than the one that looks best in a spreadsheet. A mix that forces you to sell at the bottom has failed regardless of its expected return. See strategic-asset-allocation for the long-term target and rebalancing for how it is maintained.
Related: strategic-asset-allocation, tactical-asset-allocation, rebalancing, diworsification, sixty-forty-portfolio