Let's say for instance you have a measured value which you write as ##x = 2.3##. What that is supposed to mean is that you're confident of the 2 and the 3, but not of any further figures. You don't mean that the real value is 2.3000. You mean it's approximately 2.3. You mean that it could be 2.32. It could be 2.27. You can't distinguish between those possibilities with your measuring equipment. It's something that rounds to 2.3, so it could range from 2.25 to just under 2.35. We could write this as 2.30##\pm##0.05. Let's call this ##x + dx## where ##-0.05 \leq dx \lt 0.05## (technically it can't equal +0.5 exactly as that would round up, not down).
Now let's say we have another measured value ##y = 4.12##. On this one, I'm confident of the three digits, but no more. So actually it's 4.12##\pm##0.005 or ##y + dy## with ##-0.5 \leq dy \lt 0.5##.
What will we say about a calculated value ##z = xy##? Well since the correct values of ##x## and ##y## are actually a range of values, we have a range of possible values for ##z##.
##z + dz = (x + dx)(y + dy) = xy + y\;dx + x\;dy + dx\,dy##
So the error part that we add to ##xy## is ##dz = y dx + x dy + dx dy##.
That means that ##dz/z = (y\;dx)/z + (x\;dy)/z + dx\,dy = (y\;dx)/(xy) + (x\;dy)/(xy) + dx\,dy/(xy)## = ##(dx/x) + (dy/y) + (dx/x)(dy/y)##.
In the example we have ##dx/x = 0.05/2.3 = 0.022## a ##2.2\%## error and ##dy/y = 0.005/4.12 = 0.0012##, a ##0.12\%## error. So the relative error in ##z## is going to be at least ##2.2\% + 0.12\%##, and that last term is even smaller, a tiny fraction of a percent. So we typically ignore it.
We know ##y## to about 0.1%, but we only know ##x## to about ##2\%##, and that causes us to only know ##z## to about ##2\%##. It is the error in your least precise term that dominates in your overall error.