Thatch is not a bad thing. Too much thatch is too much of a good thing!
Thatch can be comprised of decomposing lawn clippings and leaves, and old dead growth at the crown of the plants. Thatch in amounts less than a half inch is healthy in a lawn, and can act as an insulating mulch in warm weather, and a feeding ground for microrganisms and worms. It’s once the thatch becomes deeper than that when the previous list of positive outcomes will work against you.
In deeply thatched lawns grass will die back, and the layers actually inhibit rain and irrigation water from reaching the soil line. Organisms, diseases, and pests can flourish into unhealthy numbers and damage your entire lawn unless the area is de-thatched with either a thaching rake, or though core aeration.
Over-thatching most often occurs in lawns that are over-treated with chemical fertilizers, mowed irregularly, and those that are older and more established. Some thicker types of grass are also prone to thatching, like Zoysia grass and Kentucky Bluegrass. Some signs of a deeply thatched lawn are lawns that give you a springy or cushioned step when you walk on them, an increase in diseases taking over large areas, and dieback.