Collections serve as a way to organize sets of assets into personally defined groups, like folders. For instance, you may find it useful to create a Collection of all environment-based Static Meshes that fit a certain visual style, for quick access later.
Under the hood, Collections are really just lists of references to given assets. The assets themselves are not moved into the Collection. This means that a single asset can exist in any number of Collections, and you can create as many Collections as you wish.