Change output

The available funds in a wallet are actually an aggregated total of what are called unspent transaction outputs or utxos. When sending funds to someone else, these outputs are used as an input to a new transaction that creates outputs for their wallet.

The important thing to note about outputs is: there is no way to send a partial output. Because the entire output must be spent, but often the amount that is desired to be sent does not exactly match the unspent output, a change output is created to send the remaining funds back to the originating wallet. The change output is typically sent to what is called a change address. It's recommended that wallets make some attempt to obscure which output is change and which is the transfer destination, in order to improve the privacy of the user. Some wallets re-use existing addresses for change, however address reuse of any kind is bad practice and these wallets are therefore not recommended.

The name change output can be thought of as an analogy for change made when paying with physical bills or coins. When paying with a higher denomination than a purchase requires, the merchant hands back smaller denomination bills or coins as change. In Bitcoin's case a user follows a similar pattern but makes change for themselves.

Generally wallets obscure change addresses from users. This is because they are generated by the wallets themselves, so it is considered less important to keep track of these addresses, unlike addresses that have been given out publicly, which may be important to relate back to a more deliberate exchange.