An online identity is your identity on the internet.
You have to use one for identification on a particular site that allows registaring for an account.
You have to use one for online shops like Amazon and eBay so they know where to deliver the product.
You have to use one for a job seeking website so the employers know who are they interviewing.
Social Media Optimization is something that businessess use to make their products more popular.
Social Media marketing is important because it allows the business to drive more traffic to what they are selling.
Here is a video about the different laws of socual media marketing that you need to know if you want to promote a business online. I find this interesting because the video show what not to do when promoting or running a business online.