Humidity is one of four primary variables which must be controlled during incubation – the others being temperature, ventilation and movement (or turning).
Egg shells are porous – they allow water to pass through.
All eggs have an air space. As water is lost through the shell it is replaced by air drawn through the shell.
This air space is the first air that the fully developed chick breathes and the space allows the developed chick some movement inside the shell to allow it to maneuver into hatching position.