On a well administrated system, this'll get set automatically for you when you log in. Otherwise, you may need to set it manually. You can list all of the the environmental variables by running the env command. Note that these will vary slightly for each user. The method of changing an env-var is slightly different for each shell.
Different terminals have different keyboards and different monitors.
If your TERM variable is not correctly set, your keyboard may not work well and information may not get displayed correctly. It's usually not a show stopper, but can be extremely frustrating. When the TERM variable gets set, various keyboard 'control characters' also get set. For each session, the OS needs to know what to use for a backspace. Reprints the current command line if your display gets garbled.