I hear it all the time from students.
"I hate knitting a gauge swatch!"
And they hear this back...
"If you want to be surprised at the fit, if you want to have wasted 30 or 40 hours knitting a sweater that the recipient can never wear, then don't knit a gauge swatch.
This little icon appears on every label of yarn. It's a suggestion from the manufacturer. This one says that the manufacturer thinks this yarn looks best at 5 stitches and 6 rows per inch which can be achieved on size US 8 (5mm) needles. The only way to know if this is true for you is to knit up a 4 inch square of stockinette on size US 8 (5mm) needles. If you get 5 stitches and 6 rows per inch, great. If you get fewer stitches and rows you need to go down a needle size and try again. If you get more than 5 stitches and 6 rows per inch then you need to up a needle size.
As you can see in this sample, taken from Jacqueline Fee's The Sweater Workshop, the yarns were knitted on many different needle sizes.
What makes doing your gauge swatch so interesting is that you get to see what the yarn you're working on looks like in other gauges. Sure, the manufacturer says it's best at 5 stitches per inch. But you might like it better at 4 stitches per inch or at 6 stitches per inch.
When it comes to yarn labels, the gauge is only a suggestion - you're free to experiment and create a fabric that you like, even if it's not what the manufacturer suggests. Maybe the manufacturer says the yarn looks best at 5 stitches per inch, but you like it at 4 stitches per inch - then you can use it for patterns that require a gauge of 4 stitches per inch. Because while the gauge on yarn label is simply a suggestion, the gauge requirement in a pattern isn't a suggestion... or is it?
Let's say you have a pattern that calls for 5 stitches to the inch. But you fall in love with a yarn but that yarn is labeled at 4 stitches to the inch. You now know you can knit it on smaller needles to squeeze in more stitches per inch—and you get it up to 4 1/2 stitches to the inch. You then use even smaller needles, making a tighter fabric at 4 3/4 stitches per inch. But you just can't knit this yarn any tighter, you can't get it to the required gauge of 5 stitches to the inch.
"Well," you think, "being off by 1/4 stitch per inch isn't that much." Yes it is. Getting 1/4 of a stitch per inch more than the pattern calls for adds up. Every 4 inches in the pattern will yield 1 extra stitch. And over the chest circumference of a 40" sweater that's 10 extra stitches and at your gauge of 4 3/4 stitches per inch you've added 2.1 inches.
But all is not lost. True, you're looking at a 2 inch difference, but you might be able to use this yarn and simply knit a smaller size in the pattern, knowing that your sweater will be almost 2 inches larger that the given final dimension. And sometimes a pattern yields sizes 36, 40, and 44 - but you'd prefer a 38, 42, or 46. Going "off gauge" by a 1/4 stitch per inch may just be the answer you're looking for.
In the end, gauge is always suggestion. Going off gauge in choosing a yarn allows you to choose from a much larger range of yarns for any given project. And going off gauge from a pattern allows you to fudge the final dimensions of a sweater which might just yield a better fit. Just knit your gauge swatch and do the math so you know exactly what you'll have in the end.