Velocity is a measure of work done by the TEAM in a SPRINT. It is calculated at the end of the sprint by calculating total story points finished in that sprint.

For example – 

• If the team finished 20 story points in a sprint then the velocity is 20.
• It is a key feedback mechanism for the team. It is also a key metric in Scrum.
• It is recommended that stories which are incomplete or unfinished the credit to the points should not be given.

Velocity should be tracked throughout the sprint on the Sprint Burn Down chart and should be visible to all the team members. In case of the burn down is not proper Scrum Master and Product Owner can discuss with the team after daily stand up.

With velocity, the product owner can figure out how many sprints this product will the team TAKES to deliver the desired functionality and is ready to be shipped. Depending on the length of the sprint he can fix the release date of the product.

For an example, if the velocity of the team is 20 story points and total points estimated in the product backlog is 100 then the team is estimated to finish it in 5 iterations (2-week iteration then 10 weeks), in this way it helps in release planning.

It also FACILITATES how many stories can be finished in one sprint. Most of the sprint velocity keeps on oscillating but average velocity of past 3 sprints is a good measure.