Keyword density is a very important part of search engine optimization. Keyword density is the percent that your keyword or keyword phrase are of your web page text. You may want to look that your competition to see what keyword density they are using. To high a keyword density will be considered search engine spam and can get you blacklisted.
Your keywords should be toward the top of your page and your keyword phrase be in either every paragraph or every second paragraph depending on your paragraph length.
In my opinion keyword density is the number of times a particular phrase has been used on a page, and while most people would suggest that your phrases should be placed in your title, keyword tag, description tag, h1, h2, alt tags, title tags, url tags, and so many other areas that you can think of it only boils down to one thing.