Gap insurance is additional coverage that will help to pay off your car if you have an accident and your normal full coverage insurance does not cover your full loan balance. Most cars are worth less than their initial loan amounts, but full coverage insurance will only reimburse for the retail value of your car on the day it is wrecked.
Gap insurance is meant to fill in that gap between retail value and loan balance, but is it worth purchasing? Not for everyone. If you have a short term loan (36 months or less) you will be in a positive equity situation in a short time and would not need gap insurance. If you put 20% down on a car and your loan is 60 months or less, you will be in the same situation.
On the other hand, if you have a 60 month auto loan (or longer) and only put 5% down, you will be in a negative equity situation for at least two years and would be wise to carry gap insurance. If you do not and your car is a total loss, you may be faced with thousands of dollars in debt with no car.
Gap insurance is an expense that needs to be evaluated on an individual basis. In the end it comes down to protecting yourself.