Policy routing is a means of controlling routes that rely on the source, or source and destination, of traffic rather than destination alone. Policy routing can be used to control traffic inside an AS as well as between ASs. Policy routing is a glorified form of static routing. It is used when you want to force a routing behavior different from what the dynamic routing protocols dictate.
Static routing lets you direct traffic based on the traffic destination. Traffic toward destination 1 can be transmitted via point A, and traffic toward destination 2 can be transmitted via point B.
Policy routing, on the other hand, lets you direct traffic based on traffic source or a combination of source and destination (or perhaps even other ...