A system is considered "critically damped" when it returns to equilibrium as quickly as possible without oscillating. This occurs in systems like mass-spring systems or electrical circuits where the damping force is perfectly balanced with the system's inertia. In a critically damped system, the response to a disturbance is smooth and efficient, avoiding overshoot. This is important in applications such as automotive suspension and control systems, where stability and speed are crucial for performance and safety.