What is Collateral?

I saw it in my Nami wallet, is it necessary to add collateral?

To make Smart Contract transactions on Cardano it is necessary to set collateral in the wallet.

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But what does it do? Since it is not present in other wallets like yoroi, i wonder in what situation the 5 ada in Nami will be used/spent?

A (larger) bit is explained here:

As far as I understand, the 5-ADA-thing of Nami is not a must. They do it to reduce the risk of losing the collateral (when using a broken contract).

You could put a UTxO with more ADA as collateral, but then that might get lost. So, Nami transfers 5 ADA from your wallet to your wallet, which only fragments your wallet more and costs a little transaction fee, but does not change the balance more than that.

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The other wallets are not as far in implementing the dApp thing, so probably have not decided how they will do the collaterals.

And Namis way is not perfect, either:

So, it seems to not work well, when using several Nami instances and it would also totally break, when using other wallet apps on the same wallet.