The Clip tool is used to extract data based on the boundary of other data. For example, if you wanted to determine which portions of streets were located in the city limits, you could use the clip tool to cut out the parts of the streets that are inside the city limits to their own layer. The Clip tool acts like a cookie-cutter.
This tool can be found in the Analysis toolbox and the Extract toolset. It can be used to clip points, lines, or polygons. However, the clipping layer must be a polygon. Here is an example of the Clip tool in action:
From the previous screenshot, you can see that we are trying to isolate the portions of the creeks and streams that are located inside the city limits. The creek and stream layer contains the location of all of them in the entire county. Here, we have clipped them using the city limits layer, which is a polygon. The result is a new layer that contains only those portions...