1) This term is used to describe something that is the best in it's respective class.
2) It can also be used when someone is talking about what is most important to themselves (normally themselves).
1) Girl - Why do you keep touching and looking at my ass, it's not that good
Boy - It is baby, I love it that's all cos it's number 1
2) I love her, she always comes first because she is my number 1 priority.