In SAP SD module, we assign the distribution channels to the Sales Organisation. This assignment of Sales Org - Dist.Channel is used in Sales Area setup and Plant assignments by following:-

Sales Org - Dist.Channel - Division = Sales Area

Sales Org - Dist.Channel - Plant

However the just assignment of Sales Org - Dist.Channel doesn't hold any significance in simple SD. But this assignment is significant in SAP IS-Retail.

In SAP Retail, a distribution chain consists of a sales organization and a distribution channel. You can maintain data relevant to sales, for example, conditions or assortments, for each distribution chain. For organizational reasons, for example, in order to compile statistics, a site is assigned to only one distribution chain. However, deliveries can still be made to a distribution chain from a number of distribution centers. In the same way, one distribution center can supply goods to a number of distribution chains.

You can see the controls of the Distribution Chain in this short 5 minute video.

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