A statute of limitations is a law which places a time limit on pursuing a legal action in relation to a breach of contract; essentially, it is the prescribed time limit in which a lawsuit must be filed. For example, in California, a personal injury claim must usually be filed within two (2) years of the date of injury. If you do not take action within two years, the suit is "barred”, meaning you can no longer sue.
Notable statutes of limitations in CA include: 2 years for personal injury, 3 years for fraud, 1 year for libel/slander/defamation, 3 years for injury to personal property, 2 years for product liability and 4 years for written contracts and 2 years for oral contracts.
In some cases, it is not possible or reasonable to expect a party to recognize an injury/breach of contract until a considerable time period after the breach occurs. When valid, the "discovery rule" allows a suit to be filed within a certain period of time after the injury/breach is discovered, or reasonably should have been discovered.
It is possible to shorten a statute of limitations through contract. For example, a contract might require that any claim relating to employment (like wrongful termination) be filed within one year of the questionable conduct. Courts often honor such clauses, particularly regarding business transactions, despite the fact they provide for a shorter limitations period than the statute of limitations would otherwise allow.
In in a questionnable circumstance, it is certainly better to be sooner rather than later. A late filed case can be dismissed, and may never be able to be brought again. If you have questions regarding a particular case or circumstance, it is essential that you contact a competent attorney in your jurisdiction.