In general, lips crack because they get dry. As the skin on your lips dries out, it contracts and pulls apart in places. The most usual causes of the skin becoming dry are related to the weather.
For example, staying out in the wind can make your lips get dry. The wind blows across them, sucking moisture out and making them dry and cracked.
Another example is cold weather. Cold air is generally dry and the dry air pulls moisture out of your lips as well.
Lip balms protect your lips by sealing in the moisture so your lips won't dry out.
There are also various medical conditions that cause cracked lips, but most people's lips crack because of the weather.