Simulated Reality is a virtual, computer based world, in which intelligent beings exist through impulses of electricity in their brain. The Matrix is a massive system of referential signs whose artificial construct refers the world as a simulated reality of how it was around the turn of the 20th and 21st centuries. Created by the Machines to keep the humans under control while harvested as organic power sources in pods.
The simulated reality is juxtaposed with the Real World. It exists as a simulation for the humans where the Matrix creates the sensory perception that is indistinguishable for those connected to it. The Bluepills essentially power the simulation. Redpills can potentially create an algorithmic anomaly that could create a system crash and kill everyone inside.
Scenes in the Animatrix show how machines needed a new energy source. The humans provides energy in a form of fusion, while the Matrix keep their minds under control.