Not to be confused with Texture (the actual images being displayed).
A Material is the file that the engine uses to know what to display. A material contains information about what textures to draw, how to draw them, how to treat the textures being drawn, and how it should react. Materials are different from textures, which are the actual images that are being drawn.
Materials are the same concept in both Source and Source 2, however they are defined in different files:
GoldSrc does not use materials; instead, textures are used directly, and flagged either via name in a WAD or by metadata in an MDL or SPR. Information about a texture's "material" is instead stored in materials.txt and MAT files.
Risk of Confusion:This page is for the concept of materials in general. More information about materials in specific engines can be found on the documentation about the specific engines' material format pages.