To decide on the columns of an index you have to consider the most frequent queries running against your tables. You have to examine the WHERE and JOIN clauses (ORDER BY and GROUP BY also benefit from indexes), since SQL query optimizer will try to find the best way to return the results by using a complex mechanism to evaluate available indexes and statistics. An over simplified diagram of the query optimizer’s decision making process is displayed below.
Because without an index SQL server has to scan entire tables to return requested data. It is like the index page in a book. You check for the keyword you want to read about in the index and you jump directly to the page were the content belongs, instead of scanning page by page for the material you want to read.