What is the house edge?
It is defined as the mathematical advantage that a game of chance has over the player as time moves on.
Why does the house edge matter?
The advantage that the edge represents for the gaming provider includes a variety of things, including casino profits and the ability to cover the costs of the operation, such as paying staff, rent, maintenance, etc.
The edge matters as well for players, for whom it represents an assured percentage loss of what they wager.
Can you give me an example?
A video poker machine located in a casino may have its edge set to 5%. This means that on average, the machine will collect 5% of every bet you make, whether its $1 or $100. In some countries, there are laws stating what the maximum edge casinos or gaming operators can set their machines at.
How does it work?
In most machines, there is a mechanism called a Random Number Generator, or RNG. This program actually selects the combination of symbols that will be shown to the player when a button is pressed. In order to give the house its edge, this RNG is programmed to select more losses than wins.
Do all games work with RNG?
The answer here can go two ways. Due to the popularity of online gaming, a large percentage of players now prefer to play online, where all casino games are subject to a RNG.
However, in a physical casino, table games do not involve a machine and thus cannot be programmed do not have an RNG; therefore, casinos just change the odds. Roulette, is an easy example. On a single 0 wheel there are 37 numbers, which means a 1 in 37 chance for the player to pick the right number. House payouts however, are set at 35 to 1, which means the house already has a 2.7% house edge, without counting the fact that the real house edge (expressed as: 1-CashOut/CashIn) for most roulette tables in real casinos is about 5.26%.
Blackjack, one of the most popular table games at any casino, actually has a very low house edge, with players that use basic strategy losing less than 1% of their total wagers with strictly average luck. Due to this, plenty of casinos alter and modify the game, introducing fewer or more decks, making the dealer stand or hit on soft 17, splitting, etc. All these changes may modify the edge in favor of the casino, or the player, and usually affect the edge by a few percentage points, from 0.5% to around 0.20%, which added up, make a big difference in the long run.