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The Crystal Shard is a piece of the Pure Crystal that flew out when the crystal was struck by a Skeksis, turning it into the Dark Crystal and throwing Thra out of balance. Over the years, it ended up at Aughra's Observatory, where it was found by Jen during his quest after UrSu told him to retrieve it. At first, he had no idea what he was supposed to do with it, but when he and Kira discovered The Prophecy of the Crystal in The Gelfling Ruins, its purpose was made clear.
At the end of the film, Jen inserted the shard into the Dark Crystal, re-uniting the Mystics and Skeksis, bringing balance back to Thra, and forming the Pure Crystal once again.