Standard deviation shows how dispersed the returns of the fund are over a specific horizon relative to the mean. Standard deviation & volatility are used synonymously.
A lower standard deviation doesn’t always mean that the fund is better thus the metric should not be looked at alone.
For eg : Fund A has a standard deviation of 15% and a return of 20% ( Annualised figures ). On the other hand, Fund B has a standard deviation of 12.5% and a return of 10% ( Annualised figures ). We can see that even though Fund B is less volatile, the returns are half of that of Fund A.
Standard deviation should be looked at along with other factors like returns over different horizons. Different categories of funds will have different standard deviations. Small Cap funds are generally more volatile and thus have higher standard deviation than large cap funds, but they also have different return profiles.