Given two values
unsigned short a = 0xD5;
signed short b = 0xD5;
a is interpreted as 213
b is interpreted as -43
This is important in comparison, multiplication, division operations as well as conversions for stuff like Serial prints because how it's interpreted would affect the result.
Addition, subtraction and bitwise operations don't care as the result (in binary) is the same no matter how it's interpreted.