What is the difference between relative, absolute and mixed cell references?

A reference decides what happens when a formula is copied — controlled by the dollar sign, which locks the part it precedes.

• Relative — A1. Both parts shift. Copy a formula one column right and one row down, and it becomes B2. This is the default and is what you want most of the time.
• Absolute — $A$1. Neither part shifts. Use it for a constant referenced from many formulas — a tax rate, an exchange rate, a threshold.
• Mixed — $A1 locks the column and lets the row move; A$1 locks the row and lets the column move.

Mixed references are what the question is really testing, because they are what makes a two-dimensional grid work. In a multiplication table or a rate matrix where headers run across the top and down the side, one formula written as =$A2*B$1 can be filled across the entire grid — the column lock keeps it reading the row labels, the row lock keeps it reading the column headers.

Note: F4 cycles through the four combinations while editing. And mention named ranges as the more readable alternative — =Price*TaxRate is self-documenting in a way that =B2*$F$1 is not, and named ranges are absolute by default.