If you make things to sell, each thing (doodad) costs you a certain amount to make. This is it's production cost. If you (the manufacturer) sell a doodad for less than the production cost, you lose money.
Typically, as a manufacturer, your goal is to focus on making stuff, and let other people deal with selling it. This was especially true before the Internet. You want to make 1000 doodads and sell them all at once to a retailer, who will then worry about selling them one by one.
For this to make any sense for you and the retailer, each of you have to make money on the deal. So your production cost per doodad is $1, and you sell them to retailers for $2. $2 is the wholesale cost. The retailer now needs to turn around and sell them for more than $2 each to make money.
You, the manufacturer, have done the market research and found out that you think people will pay $4 each for a doodad. So you tell the retailer "I'll sell you 1000 doodads for $2 each, and then you can sell them to people for $4 each". $4 then becomes the manufacturers suggested retail price or MSRP.
The retailer doesn't have to sell the doodads for MSRP (usually, there can be exceptions). A retailer might be happy to sell doodads for $3 each, make less profit per sale but sell more items total. For example, Amazon figures out that they can sell 500 doodads for $4 each (making $1000 profit) or 1200 doodads for $3 each (making $1200) profit. It's their choice to do so.
Now, back to you the manufacturer. Again your goal is to make lots of doodads at a time and sell them to retailers in bulk. Selling them one at a time is kind of a hassle (after all, that's what the retailer is for). However, it's the Internet age so you decide to offer some doodads for sale on your website. Now, unlike your retailers who are selling doodads that cost them $2 each, your the manufacturer so they really only cost you $1 each. Awesome - you can totally sell these cheap, right?
Well, no. Not unless you want to piss off all your retailers and have them stop buying from you. If I'm a retailer and I see that you, the manufacturer, are selling direct to customers for a price lower than your MSRP (that you told me was the right price), then I'm going to stop buying from you. Why should I waste my time trying to sell your products for the price you told me I could sell them for, if you're just going to turn around and undercut me and take the business for yourself?
Manufacturers that try to sell direct for less than MSRP will find their retailer customers - the ones they really want - will disappear very quickly.