You might be surprised to see 'Market & Audience' so early in this book, after all, isn't that where the game ends up last? But that is exactly why you need to be thinking about it now. This is especially true if you wish to sell your game. Knowing what market you're after will give you an advantage when deciding which features to cut or add later on. Just remember to keep yourself satisfied with it too; you can't make a great game if you don't like it.
In the illustration you can see a magician performing a trick before an amazed audience. Yet off in the distance there's someone who isn't feeling amazed. They may even be puzzled by the others' reaction. You see, magic tricks (at least the garden variety sort) are targeting a young age. When you get older you aren't impressed by a little rabbit being dropped out of a cage or the popcorn being 'magically' popped. To reach an older audience the magician must perform tricks that interest older people; in doing so they may lose their younger audience. Sawing a volunteer in two is an impressive feat; it can entertain mature audiences but a kid in that place would probably freak out. By studying your target audience you go from randomly choosing between rabbits and saws in your design to knowing exactly why you should choose one over the other.
Traditionally businesses tend to think about customer age, gender, income, and neighborhood/culture. These are bases you need to cover with some research; they're always changing. You should choose a specific group such as 12-20 year old males, then you can branch out and attempt to gain other audiences without alienating your main fan base.
But wait, there's more! As a game developer you have to look at two more groups: the casual gamers and the hardcore ones. These are widely known by game developers and essential to marketing a game. At the heart of it, hardcore gamers simply put more value on the gaming experience and will put forth more effort to play through a game; they want to get the most of it. Casual gamers are usually less experienced and see whatever is most obvious in a game.
In most cases, the hard-core gamers are willing to go against a difficult challenge and enjoy it. They'll spend extended hours playing the game so it's a good idea to make it replayable. This group also has a tendency to like it when you hand them...