It's one of the important lipids that can be found naturally in the outer layer of the skin. About 25% of the goopy stuff between our skin cells consists of cholesterol. Together with ceramides and fatty acids, they play a vital role in having a healthy skin barrier and keeping the skin hydrated.
Apart from being an important skin-identical ingredient, it's also an emollient and stabilizer
https://incidecoder.com/ingredients/cholesterol