API versioning is important to balance the needs of API providers who want to frequently update their APIs, and API consumers who want APIs to remain stable. API versioning allows both groups to work together by allowing providers to release new versions while maintaining backwards compatibility for consumers. It provides a standard way (Semantic Versioning) to increment version numbers based on the type of changes - major for incompatible changes, minor for backwards-compatible new features, and patch for backwards-compatible bug fixes. This allows consumers to control when they upgrade to a new version.