Definition
Chain of custody is the documented record of who has owned, held, and transferred an item from its origin to the current owner. For memorabilia, strong chain of custody is a major component of provenance and is especially important for unique items where authentication alone cannot establish full value.
Why it matters
Items with broken chains of custody (i.e., periods where no one can prove who held them) typically realize lower prices than items with continuous documented chains.
Example
A baseball jersey passes from the team to a clubhouse attendant in 1972, then to the attendant's family, then to a single auction house in 1995, then to the current owner — each step documented with letters and receipts.