Favorites are Dashboards or Looks that you have specifically identified as, well, a favorite. When you view Dashboard or a Look (or when you view a list of Dashboards or Looks in the Popular, Recently Viewed, or Shared spaces), you will see a little heart icon:
If the heart is colored purple, that means that you have marked the Dashboard or Look as a favorite:
In turn, that also means that the Dashboard or Look shows up in your Favorites perspective:
That, of course, is the whole idea of favorites: if there are Dashboards or Looks that you find especially useful, you can mark them as favorite. In turn, that means that you can quickly locate these items by going to the Favorites perspective. Among other things, that saves you from having to remember what the Dashboard was named, whether that item you were looking at even was a Dashboard (maybe it was a Look), what Space the item is stored in, etc., etc.
If you change your mind, you can “unfavorite” a Dashboard or Look by clicking the heart icon again. In that case, the icon will turn white, and the Dashboard or Look will be removed from the Favorites perspective:
Note that there’s no limit on the number of favorites you can have. (Although, admittedly, marking every single Dashboard and Look would seem to defeat the point of having favorites in the first place.)
We should also note that, when you're working in the Favorites space, you have the option of sorting your favorites either by name or by "favorited date," the date that you marked the item as a favorite. Do that, and your favorites will be sorted by the date they were marked as a favorite. However, the date itself is not displayed: