Ancient mariners navigated by the stars, but that method didn't work during the day or on cloudy nights, and so it was unsafe to voyage far from land.
The Chinese invented the first compass sometime between the 9th and 11th century; it was made of lodestone, a naturally-magnetized iron ore, the attractive properties of which they had been studying for centuries. (Pictured is a model of an ancient Chinese compass from the Han Dynasty; it is a south-indicating ladle, or sinan, made of polished lodestone.)
Soon after, the technology passed to Europeans and Arabs through nautical contact. The compass enabled mariners to navigate safely far from land, increasing sea trade and contributing to the Age of Discovery.