This is a great question. First, it is probably best to define what institutional investors are. These are large funds that invest money in securities, such a pension funds, hedge funds, insurance companies, and the like.
These investors are important for the business world for at least two reasons. First, they have massive amount of money. In other words, they are cash heavy and they can use this money for immediate investments. This money, then, can be used by those companies that get this money to build their companies further. The idea is money can create more money.
Second, these institutional investor are important, because they have a lot of power. When they invest in companies, the boards of these companies may give them a large voice, because of the size of their investments.