Postulated by British economist, Alfred Marshall, in the 19th century
States that as a person continues to consume more of a good or service, the satisfaction or the marginal utility derived from each additional unit of that good or service diminishes gradually.
In other words, it is not the absolute level of utility of the product, but rather the diminishing marginal utility which matters.
Example
For example: One litre of water is precious - it will quench your thirst. But, if you have 5 litres of water, you will store it for later use.